What's going on?
UK-based budget airline easyJet hit some turbulence on Tuesday – it posted one of its biggest ever losses and its stock fell about 6%!
What does this mean?
Tough competition from other budget airlines in Europe contributed to easyJet’s significant fall in profits. While the number of travelers flying with easyJet has continued to tick up in 2017, increasing competition has pushed down the average price of a plane ticket. Because of these lower prices, easyJet is earning almost 10% less in revenue per seat versus a year ago.
At the same time, the airline’s costs have been going up. It has to pay for things like airport fees and jet fuel in euros and dollars, which are far more expensive in British pounds (in which easyJet makes most of its revenues) than they were last year thanks to the sharp drop in the pound’s value.
Why should I care?
For markets: EasyJet is still investing in growth.
EasyJet announced on Tuesday that it is increasing the number of new planes that it’s buying. While this might appear to be a bad strategy, particularly as the airline industry is already grappling with high competition, easyJet seems to think that expansion will position it well, assuming other competitors start to scale back their flights (like Alitalia, which is going through bankruptcy proceedings, might do).
The bigger picture: Budget airlines are growing faster than passenger demand.
Other budget airlines like Ryanair and Norwegian Air also have plans to expand their fleet – and altogether the supply of new seats is forecasted to grow three times faster than passengers’ willingness to fly! That could be a problem for easyJet’s expansion, but in the short run, it probably means cheaper plane tickets for you!