Easyjet has unveiled a new-look package holiday business just months after the collapse of Thomas Cook, despite profit plunging more than a quarter over the last year.
The budget flyer said the new business, Easyjet Holidays, will launch in the UK just in time for customers to pencil in a Christmas getaway, with bookings open for winter 2019 and summer next year.
The move flies in the face of what it called a “difficult” financial year, in which weak consumer confidence and higher fuel costs hurt the business despite attracting 8.6 per cent more passengers than the year before.
Shares rose four per cent this morning.
Easyjet’s profit before tax plunged 26 per cent to £427m for the 12 months to the end of September. But profit still came towards the top of the £420m-£430m range the airline had guided to.
Profit before tax per seat fell 33 per cent to £4.07, down from 2018’s £6.07.
Meanwhile revenue rose 8.3 per cent to £6.39bn, up from 2018’s £5.9bn, driven by Easyjet’s greater capacity. That also helped passenger numbers grow 8.6 per cent year on year to 96.1m.
Basic earnings per share fell by a quarter to 88.7p. And Easyjet’s dividend also fell 26 per cent to 43.9p per share, compared to 58.6p a year ago.
Net debt dropped from £738m this time last year to £326m.
Why it’s interesting
Easyjet chief executive Johann Lundgren is a former director at Tui, which is also a big player in the package holiday market.
He thinks a move into the space will help boost the carrier’s revenues, and has spent the last 12 months making deals with hotels on its most profitable routes.
Easyjet expects the venture to break even in its first year, and sees a gap in the market for “a modern, relevant and flexible business”.
However, it comes less than two months after Thomas Cook, the 178-year-old package holiday pioneer, went out of business. Ryanair chief executive Michael O’Leary, who earlier this year scrapped his own package holiday business, has since said that part of the market “is screwed, it’s over”.
Furthermore, Wizz Air boss Jozsef Varadi said last week that he was “surprised” to hear about Easyjet’s plan, calling the package holiday business “outdated”.
This morning, Lundgren told journalists: “I don’t pay a lot of attention to what Michael or Jozsef has to say about our holidays business.
“This is a big market. It’s worth £62bn across Europe, it’s worth £13bn in the UK. And we know and we have the skill sets of how to do this right.
“And I think that there’s a number of players out there who haven’t got this right when they’ve tried previously.”
According to trade group ABTA, the number of people booking package holidays has risen 15 per cent in the last five years.
Julie Palmer, partner at Begbies Traynor, said: “Easyjet is taking advantage of the current climate sweeping across the industry in order to grow its operations following a year which has seen a number of European airlines nosedive as a result of a faltering economy in Europe.
“Currency fluctuations and increased fuel prices have hampered growth for the budget airliner, but the demise of Thomas Cook has provided an opportunity for the business to capitalise by relaunching its packaged holiday business.
“Moreover, EasyJet has been picking at the bones of other airliners who have suffered at the hands of falling demand, including Air Berlin’s assets at Tegel Airport and Thomas Cook’s runway slots at Gatwick and Bristol airports.”
The profit drop was in line with expectations.
What Easyjet said
Lundgren said: “We are bringing flexibility and excellent value to the holiday market.
“We are now able to offer our customers more than 100 amazing beach and city holiday destinations, pairing Europe’s best short-haul flight network with more than 5,000 of Europe’s best hotels.
“We believe there is a gap in the market for a modern, relevant and flexible business for today’s consumer.”