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Budget airline easyJet set to reveal 'terror cost'

Published 08/05/2016

EasyJet is set to reveal the toll of terror attacks in Europe and the Middle East have taken on the airline when it posts results on Tuesday
EasyJet is set to reveal the toll of terror attacks in Europe and the Middle East have taken on the airline when it posts results on Tuesday

Budget airline easyJet is expected to lay bare the cost of recent terror attacks this week, with William Hill also set to update the market on its progress while the annual meeting at Lloyds Banking Group caps off a busy week in the City.

EasyJet is set to reveal the toll that terror attacks in Europe and the Middle East have taken on the airline when it posts results on Tuesday.

Analysts at Numis expect the Luton-based carrier to swing to a £15 million half-year loss compared to a £7 million profit 12 months ago, in the wake of deadly attacks in Paris, Egypt and Brussels.

The airline said in January the Paris attacks and the suspension of flights on routes to the popular Egyptian tourist destination of Sharm El Sheikh following the Russian airliner crash left revenues 3.7% lower in the first quarter. Numis estimates this cost the firm around £45 million.

EasyJet also estimated that exchange rate movements would cost it around £25 million by the end of the first half of the year.

The Brussels bombings in March are also expected to impact the airline's second quarter revenues.

However, airlines often register a loss in the traditionally weaker winter period, and easyJet's £7 million profit a year ago was a rare first-half result.

The City will look for comments from easyJet management on how it views the key summer season.

Analysts say the signs for a strong summer season are encouraging, with the pound strengthening over recent weeks.

Also, there is strong demand from holidaymakers for traditional destinations such as Spain, the Balearics, the Canaries and Portugal - which are well served by easyJet.

However, easyJet posted mixed passenger data in April as it builds up to the key trading season.

The airline said it boosted passenger numbers by 6.1% to 6.37 million last month compared with a year ago.

But its load factor - an industry measure of the percentage of seats that were actually occupied - fell from 90.8% a year ago to 90.4% in April.

The airline will also continue to face growing competition from its Irish budget rival Ryanair.

Ryanair chief executive Michael O'Leary recently said he expected his airline to overtake easyJet on British routes by 2017, adding that it was "only a question of time".

Bookmaker William Hill will reveal whether there has been any recovery in trading since last month's profit warning on Wednesday.

The UK's largest bookie said in March that dire horse racing results at the Cheltenham festival and high-value internet gamblers imposing restrictions on their own betting would lower full-year trading.

The material cost will be revealed at the firm's first quarter trading update this week, but the firm has already lowered guidance for the full year.

It said in March that it expects operating profit for 2016 to fall to between £260 million and £280 million, from £291 million last year. Average City forecasts were for profit of £307 million.

Chief executive officer James Henderson said its trading reflected "the worst results at Cheltenham in our recent history".

He added: "We are also experiencing softer UK growth as a consequence of acquiring lower value customers."

The business is also suffering under the weight of new Government levies.

Analysts at Jefferies estimate full-year forecasts at William Hill will be £260 million, the bottom end of expectations.

The broker said gambler-imposed time alerts on betting - dubbed Reality Checks - "will make opting out easier and lead us to conclude that the impact of these measures could increase over time".

The bookmaker, which owns around 2,360 sites, said in February that 2015 was a "challenging year " which saw it hit by almost £90 million of new online and gaming machine levies.

The annual meeting, held on the same day, will also see a vote on directors' pay, which comes amid rising shareholder concern over high executive payouts that bear little correlation with company performance.

However, Mr Henderson's pay last year was £914,417, a 35% fall from the year before.

The firm has also committed itself to paying the national living wage of £7.20 an hour to all 12,500 staff at its UK shops over the age of 18, seven years below the legislation being introduced by the Government later this year.

The company estimates that 4,500 staff will benefit from the pay rise, including 2,000 staff between 18 and 25.

The Government said last year it will introduce a national living wage in April, which will lift minimum hourly pay to £7.20 for over-25s, from its current level of £6.50, and to at least £9 an hour by 2020.

Lloyds Banking Group's annual general meeting in Edinburgh on Thursday comes amid a difficult period for the sector as it struggles against low interest rates and massive regulatory charges.

The lending giant saw its first quarter profits fall 6% to £2.1 billion on an underlying basis in April, as it was hit by buying back expensive high-interest bonds from investors.

Banks have struggled to maintain profits in recent years after being hit by billions of pounds of misconduct charges from regulators around the world since the financial crisis.

Sharper regulatory focus and unsettled global financial markets have also made once lucrative investment banking operations more costly.

Also, low interest rates have curtailed profits at retail banks such as Lloyds, as this impacts the amount lenders can charge for loans.

Last month the Royal Bank of Scotland saw its first quarter pre-tax loss more than double to £968 million, amid its major restructuring programme to become a UK-focused lender from an international business.

In February Lloyds reported that its bottom-line pre-tax profits fell 7% to £1.64 billion in 2015, after taking another £2.1 billion hit for payment protection insurance (PPI) mis-selling.

The bank said that its mortgage business remains strong, boosted by the Government's Help to Buy programme and demand from buy-to-let borrowers.

Lloyds chief executive Antonio Horta-Osorio saw his full-year pay package fall by almost a quarter to £8.8 million in 2015.

Shareholder body Pensions & Investment Research Consultants opposes the large variable pay element in Mr Horta-Osorio's package, but still acknowledges his significant drop in pay compared with last year.

Mr Horta-Osorio's salary is unlikely to be a major bone of contention at Thursday's shareholder meeting, amid a period which has thrown a spotlight on directors' salaries.

Taxpayers still own just under 9% of Lloyds and a Government plan to sell its remaining shares in February was postponed amid turmoil in the financial markets.

The Government will only sell the shares when the price rises above the 73.6p break-even level at which Lloyds was bailed out at the height of the financial crisis in 2008.

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