EasyJet today reported a 65 percent fall in underlying pretax profit after it was caught out by fuel prices hedged at high levels, but the low-cost airline forecast better earnings next year as it brings its fuel costs down.

The airline made a profit of 43.7 million pounds ($74 million) for the year to Sept. 30, its worst performance since 2001, on revenue up 12.9 percent at 2.66 billion pounds

Passenger numbers rose 3.4 percent to 45.2 million, its slowest growth rate since the airline listed on the London Stock Exchange in November 2000, and analysts cautioned that the turning point in sector demand might be some way off.

Earlier this month Ireland-based rival Ryanair posted an 80 percent rise in first-half profits after carrying 64 million passengers in the last year, 15 percent up on the prior 12-month period.

The global recession has battered the airline industry as consumers cut back on trips and the International Air Transport Association on Tuesday repeated its forecast that airlines would lose a collective $11 billion this year, despite year-on-year ticket sales growing in September.

"The general assumption is that last year was the bottom of the cycle, which was certainly the case in fuel price terms, but may turn out not to have been the case in demand terms," said Astaire analyst Douglas McNeill.

The company's shares, which have risen 16 percent in the last three months, were down 1.7 percent at 385.2 pence by 1410 GMT, valuing the airline at around 1.6 billion pounds.

"There has been a drop in the market price of fuel so we should see a 100 million pound improvement to our profits in 2010," Chief Executive Andy Harrison told a conference call.

HEDGING FUEL COSTS

The airline, which is the biggest carrier at London's Gatwick airport, has hedged some two thirds of its 2010 jet fuel requirements at $750 a tonne, substantially less than the $951 it paid for 2009.

"EasyJet didn't get its hedging right for 2008/09 but I doubt they will make the same mistake again," said one analyst, who did not wish to be named.

EasyJet hedged its 2008/09 fuel needs during a period of high fuel prices in 2008 and said fuel costs rose 14 percent to 807.2 million pounds during the year.

This was aggravated by the decline of the pound against the dollar, the currency in which oil is traded, and interest income which was 30.5 million pounds lower, it added.

The company is on average expected by analysts to report a pretax profit of 159.4 million pounds for the year ending September 2010.

MORE COST SAVINGS

The carrier, which has struggled to recoup extra costs by raising fares, said it cut costs by renegotiating existing deals and outsourcing services.

It expects to deliver savings of 190 million pounds by 2012, up from its previous target of 125 million, partly due to a deal under which Zurich-based SR Technics will maintain its fleet of Airbus jets in Malta for 11 years.

"Cost savings will grow. We also see a substantial improvement in our airport and ground handling costs because we have been able to negotiate better airport deals in the recessionary climate," said Harrison.

EasyJet said its load factor improved by 1.4 percentage points to 85.5 percent of capacity, adding that forward bookings were broadly in line with last year.

Full service airlines such as BA, which last week agreed to merge with Spain's Iberia, have seen their profits dented by growing competition from low-cost carriers and the economic downturn.