easyJet is planning to set up a separate airline in Europe, to avoid Brexit risks in UK
EasyJet reported slightly lower profits in the year to September. Their results state: “As a result of the UK’s referendum vote to leave the European Union, easyJet plans to establish an Air Operator Certificate (AOC) in another EU member state. This will secure the flying rights of the 30% of our network that remains wholly within and between EU states, excluding the UK…..The primary driver of the cost is the re-registering of aircraft in an EU AOC jurisdiction.” The BBC reported that Carolyn McCall “also confirmed that Easyjet is in the process of setting up a separate airline based on the European mainland, in readiness for when the UK leaves the EU. Current EU flying rights might have to be renegotiated and the new company would ensure Easyjet could operate within the EU.” She said they don’t have the luxury of waiting to see what happens with Brexit, but there was no question of job cuts or moving from the current headquarters at Luton. It was about registering aircraft and “securing flying rights.” Though easyJet already has a Swiss subsidiary, Easyjet itself will become the entity inside the EU with the union. “The British airline will become the subsidiary, with the existing UK airline operating certificate ring-fenced, so that it remains majority-owned by British shareholders.”
Easyjet profits tumble after year of ‘challenges’
Easyjet’s profits have tumbled during what the airline described as a year of “significant challenges”. Pre-tax profits in the year to 30 September fell 27.9% to £495m, but it was in line with a warning given last month. Passenger numbers rose 6.6%.
Sterling’s weakness, the impact on air travel of terror attacks, and air traffic control strikes hit trade. Easyjet also confirmed it is setting up a continental-based airline ahead of the UK’s exit from the EU.
Although passenger numbers rose 6.6% to 73.1 million, revenues fell 0.4% to £4.67bn as the airline cut fares.
Easyjet’s chief executive, Carolyn McCall, told the BBC that the rise in passengers and an increase in the load factor – the airline’s ability to fill seats – showed that there was no lack of demand.
But the carrier had suffered a series of “external shocks”, she said. These included the impact on air travel of terror attacks across Europe, Egypt and Tunisia, air traffic control strikes in France and political turmoil in Turkey.
The airline has also been hit by sterling’s sharp depreciation since the Brexit referendum. In the face of these issues, “EasyJet achieved a resilient performance,” she said.
Ms McCall also confirmed that Easyjet is in the process of setting up a separate airline based on the European mainland, in readiness for when the UK leaves the EU.
Current EU flying rights might have to be renegotiated and the new company would ensure Easyjet could operate within the EU.
She said: “We are not saying there will be no agreement. We just don’t know the shape or form. We don’t have the luxury of waiting. But we have to take control of our own future.”
There was no question of job cuts or moving from the current headquarters at Luton, she said. It was about registering aircraft and “securing flying rights”.
EasyJet has bases across 11 UK airports and flies more than 830 routes on its network across Europe, the Middle East and North Africa.
The airline also said it was planning a group-wide review over the next year to make it a “simpler, more efficient” company and to deliver “meaningful” savings.
Easyjet shares, down 42% over the past year, were 5% up at midday.
Richard Hunter, head of research at Wilson King Investment Management, said the results showed the airline “is clearly running hard to stand still”.
“But the market’s reaction to the numbers in early trade shows some grounds for optimism,” he added.
Analysis: Dominic O’Connell, Today business presenter
Easyjet has built its success on flights from the UK to Europe, and now the company is poised to make a trip of its own to the Continent. To get round the regulatory complications of Britain’s Brexit vote, it has to set up an organisation majority-owned and controlled by nationals and organisations inside the European Union.
Many had thought it would set up a subsidiary – it already has a Swiss subsidiary to deal with a similar route-rights complication – but instead Easyjet itself will become the entity inside the union.
The British airline will become the subsidiary, with the existing UK airline operating certificate ring-fenced, so that it remains majority-owned by British shareholders.
While it may look a radical shift, in practice it is dictated by expediency. Easyjet’s largest shareholder remains Stelios Haji-Ioannou and members of his family are Greek nationals, so meeting the shareholder threshold in Europe is simple.
And the FTSE 100 company will be retain its London listing and Luton headquarters.
As a result of the UK’s referendum vote to leave the European Union, easyJet plans to establish an Air Operator Certificate (AOC) in another EU member state. This will secure the flying rights of the 30% of our network that remains wholly within and between EU states, excluding the UK. This one-off cost is expected to total around £10 million over two years with up to £5 million incurred in the 2017 financial year. The primary driver of the cost is the re-registering of aircraft in an EU AOC jurisdiction.
The Guardian said:
McCall said she was not worried by persistently low fares because easyJet was designed for low prices and was selling more add-ons such as rental cars, hotels and in-flight extras.
EasyJet increased seat capacity by 6.5% last year and flew 73.1 million passengers, up from 68.6 million the year before. Profit per seat fell to £6.19 from £9.15. It will increase capacity by 9% this year, including in the UK, where it is the biggest airline, and in France.
McCall said she did not expect Britain’s departure from the EU to disrupt easyJet’s operations. It will apply for an air operator certificate in another EU country where some planes will be registered but the company is keeping its head office at Luton airport, where it has been based since it was founded 20 years ago.
“Our headquarters would remain in Luton and the jobs we have in Luton would remain in Luton.”
The Telegraph said:
Despite the difficulties during the past year, EasyJet said it plans to increase capacity by 9pc during the next 12 months.
EasyJet also plans to obtain a new air operator certificate in an EU member state, at a cost of £10m over the next two years, to protect its right to unlimited flights within the bloc. The group’s headquarters will remain in the UK, and the board will discuss where to house its EU base in the coming weeks, said Ms McCall.
Around 30% of Easyjet’s flights are within and between EU countries outside the UK.
“We are confident that our Government will get an agreement between the UK and the EU but we don’t know what shape that will take,” said Ms McCall.
Easyjet’s chief executive was among the aviation experts that met this week with David Davis, the Brexit secretary, to set out the concerns in the industry ahead of departure from the EU. Ms McCall said the minister was “in listening mode” about regulatory changes as the UK prepares for exit negotiations.