British airline easyJet said on Tuesday it will apply for a new licence to continue flying within the European Union if Britain leaves the bloc as sterling's slide and fears of militant attacks hit profits. Europe's second biggest no-frills airline behind Ryanair is among the most affected by the British vote to leave the European Union because about 30 percent of its flights are between and within member states other than Britain.
To protect those rights, easyJet will set up an Air Operator Certificate (AOC) in another EU country. While it is common for airlines to have more than one certificate they bring extra cost and complexity, factors that budget carriers try to avoid.
The airline said in a presentation announcing its first fall in annual profit in six years that it was close to selecting a location within the EU to make a formal application for the certificate early next year. The process will cost easyJet about 10 million pounds, split between its current financial year to the end of September and the next one.
The airline has about 100 planes and 3,300 crew members based in other EU member states and it said the costs would mainly stem from registering those planes in the new location in a process that could take 12-18 months.
"We are confident there will be an agreement between the UK and the EU but we can't be certain it will be reflective of current arrangements so that's why we need to establish an EU operating company," Chief Executive Carolyn McCall said. McCall said easyJet's headquarters would remain in Luton in Britain, where it operates 140 planes and employs 6,500 people.
Rivals are not as pressed to set up new arrangements to cope with Brexit. British Airways owner IAG is already EU-owned and has various AOCs as does Germany's Lufthansa. Ireland's Ryanair is still considering whether it would need to get a UK certificate in the event of Brexit.
For the financial year that ended on September 30, easyJet reported a 28 percent drop in annual pretax profit to 495 million pounds ($618 million), the first decline since 2009 but at the upper end of a 490 million to 495 million forecast range it gave last month. Shares in easyJet were 2.7 percent higher at 0930 GMT.
The airline has suffered as tourists shun places hit by militant attacks such as Egypt, Turkey, Paris and Nice, while the slide in the pound since Britain voted to leave the European Union in June has taken its toll. The fall in sterling knocked 88 million pounds off easyJet's annual profit and the carrier said it expected a another hit of 90 million in the 12 months to September 2017.
Despite the uncertainty caused by Brexit and currency swings that have also forced rivals operating in Britain such as Ryanair and IAG to lower profit forecasts, easyJet said it expected demand to remain strong.
However, European airlines are grappling with falling fares as they put more seats onto the market to try to take advantage of low fuel prices and win market share. EasyJet said it planned to add 9 percent more seats to the market in the current financial year and expects ticket prices to fall about 5-9 percent in the first half following a 6 percent drop in the 12 months to the end of September. Ryanair warned in October that fare prices may drop by between 13 percent and 15 percent. Analyst Robin Byde at Cantor Fitzgerald said the outlook for easyJet was cautious but its plans to sell and leaseback 10 aircraft could boost cash.
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