EasyJet Faces `Pressure’ From Oil Prices, Chief Harrison Says

EasyJet Plc, Europe’s second-biggest low-cost airline, is under pressure from rising oil costs and is already buying contracts for jet fuel at “a much higher” price for next year, Chief Executive Officer Andy Harrison said.

“If oil prices remain at the current level, it’s going to put enormous pressure on all airlines,” Harrison said in an interview yesterday. “We are hedging now for next year, but it’s at a much higher price.”
Fuel is EasyJet’s single biggest cost and oil has traded at more than $100 a barrel during four of the last six days on the New York Mercantile Exchange. The airline is targeting 20 percent growth in pretax profit in the fiscal year through Sept. 30 and is 40 percent hedged at about $735 a metric ton of jet fuel, compared with an average of $688 last year.

“The company is clearly working hard on its non-fuel costs,” Harrison said yesterday at the carrier’s base at London Luton airport. “When oil goes up, you don’t suddenly come up with a whole load of new opportunities to cut costs.”

Every $10 increase in the price of a barrel of oil adds as much as 60 million pounds ($119 million) to the airline’s costs, Harrison said. A higher oil price could allow EasyJet to make an “opportunistic” acquisition, similar to its purchase of GB Airways Ltd., completed in January.

“I think the sort of Darwinian rules will apply,” he said. “The weak will have to restructure, merge, shrink or disappear.”

Bloomberg