The Week Ahead: Figures due from Royal Mail and easyJet
- Credit: PA
The City will study letter volumes at Royal Mail this week while profits at budget airline easyJet are expected to soar.
Royal Mail is expected to post a fall in profits when it reports half-year results on Thursday as it struggles against declining letter volumes and faces a regulatory review that could cap prices.
Analysts at Investec expect the firm to post a 5.5% fall in adjusted operating profit to £284.4million in its first six months of the year compared to a year ago. The business has shed around 5,500 staff over the last 12 months and secured around £40m of savings from a head office reorganisation, but according to brokers at RBC Capital Markets, it will see letter volumes fall by 5%.
Royal Mail chief executive Moya Greene has had a challenging year which has been framed by the threat posed by the roll-out of Amazon’s delivery network, which is expected to have an impact on Royal Mail’s targets for parcel delivery growth.
Brokers at Bank of America Merrill Lynch expect to see Royal Mail’s half-year parcel volumes rise by 1.5% in what is a competitive market.
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In July, the firm’s regulator Ofcom said it would launch a “fundamental review” into the firm’s operations that could see it impose a cap on prices. Ofcom said its inquiry would look at whether current regulation secures “the efficient and financially sustainable provision” of the country’s universal postal service. The universal service is the Royal Mail’s commitment to make deliveries to all parts of the UK at a flat rate, six days a week.
Ofcom, which first said it would look at this area last month, has become concerned at the weakening of competition in parts of the letters market. The letter delivery arm of Whistl and parcel firm City Link have both folded within the last 18 months.
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Ofcom says it may roll back some of the commercial flexibility it granted Royal Mail in 2012, including the ability to put up its prices, as the business has strengthened over the last three years. The regulator is not expected to report until the middle of next year but investors will study any comments the company has to say on the process.
Budget airline easyJet is expected to show that holidaymakers’ rising demand for beach breaks and ski weekends has boosted profits when it posts annual results on Tuesday.
The Luton-based carrier raised its full-year profit guidance in September to between £675m and £700m after a bumper August performance, which is set to see the group post its fifth year in a row of record annual pre-tax profits.
The group, led by chief executive Carolyn McCall, last year turned in a pre-tax profit of £581m and was previously expected to report profits of between £620m and £660m this time.
August’s passenger numbers marked a 6.8% rise on the year earlier and the second consecutive month the group has carried more than 7m fliers. The carrier also said its load factor, a measure of how well it fills its planes, hit a record of 94.4%.
The carrier’s strong performance came despite having to cancel 1,463 flights during the period, compared with 648 a year earlier, because of French air traffic control strikes at Easter and a fire at Rome’s main airport, Flumicino.
The airline’s autumn period also got off to a strong start with October passenger traffic up 9.7% to 6.4m passengers and load factors up 2.5% to 93.3% compared to a year ago.
Numis analyst Wyn Ellis said: “With fuel prices continuing to be low and, generally, improving economic growth trends across Europe, we believe that the outlook continues to be positive.”
He said passenger demand was driven by a mix of attractive prices, the availability and timing of slots at the right airports, effective online marketing, high levels of customer service and quality. “easyJet’s capability in these areas is a powerful differentiator,” he added.