Beach holiday demand helps lift clouds for easyJet

By Sarah Young

LONDON (Reuters) - British low-cost airline easyJet (EZJ.L) forecast annual profit growth of up to 14 percent, helped by higher demand for beach holidays which calmed fears it had raised over its outlook.

Revenue performance in the three months to the end of June was better than easyJet had forecast in May, boosted by increased demand for flights to southern European resorts such as Malaga, Alicante and Faro from northern Europe, and Britain in particular.

Shares in easyJet, Europe's second biggest budget airline after Ryanair (RYA.I), gained 4.3 percent to 1,739 pence at 0840 GMT (0940 BST), their highest level since mid-May.

The strength of the pound against the euro is making holidays on the continent particularly appealing for Britons this year. The euro hit a 7-1/2-year low against the pound last Friday (EURGBP=D4), having shed around 10 percent against the currency since the start of the year.

EasyJet did, however, warn that it faced a series of uncertainties in future given the crisis in Greece, a bloody attack on tourists in Tunisia, the impact of a fire at Fiumicino airport in Rome and various threats of industrial action.

Despite these uncertainties, it forecast profit growth of between 7 percent and 14 percent for the year to the end of September, putting it on track to meet analyst forecasts for a 10 percent rise.

The company's warning over revenue per seat in May had dragged on the stock. Before Wednesday, easyJet shares had fallen 9 percent since the statement in mid-May compared to a 10 percent rise in Ryanair's stock.

The divergent performances reflect concerns about Ryanair's move into what has traditionally been easyJet's territory, after the Irish carrier polished up its image and started adding more main city airports to its routes.

But some analysts believe those fears are overdone. Ryanair and easyJet compete directly on less than 5 percent of routes, and easyJet is years ahead of Ryanair in having built a network based on so-called primary airports closer to large cities.

The easyJet strategy would help it continue to win in what it called a "more competitive market," the company said.

Analysts said investors would be relieved by this latest update from easyJet.

"With all the concerns that the market has had about excess capacity in the market and the likely impact on yields, we believe that these results will be well received," Numis analyst Wynn Ellis said, referring to yield, a measure of pricing per passenger.

(Reporting by Sarah Young; editing by Kate Holton and Keith Weir)