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EasyJet boss Kenton Jarvis has warned the Chancellor against a Budget move to raise air passenger duty as he said it would knock demand from holidaymakers.

There has been speculation that Rachel Reeves will increase air passenger duty, which is a tax on flights leaving the UK, in the Budget on Wednesday.

Mr Jarvis said this duty on UK flights was already “one of the highest in Europe”.

He is hoping Ms Reeves will freeze air passenger duty, cautioning that any increase would “naturally dampen demand”.

He also sent out a warning shot ahead of an expected move to introduce a tourist tax across cities in the UK, by giving the London mayor Sir Sadiq Khan and other civic chiefs powers to impose a levy on overnight hotel stays.

Mr Jarvis said: “Any increase in tax that impacts the competitiveness of the UK visitor economy would not be a good thing.”

He said it could encourage tourists to go to rival European cities instead, such as Paris.

“Last year, easyJet flew 15 million tourists into the UK and they spent just under £10 billion across the UK economy… so it’s very important to the visitor economy,” he said.

His comments came as the group recorded a better-than-expected annual profit haul as strong demand for its package holidays helped offset more difficult trading for its airline.

The Luton-based group posted a 9% rise in headline pre-tax profits to £665 million for the year to September 30, up from £610 million in 2023-24 and higher than the £650 million most analysts were expecting.

Its growing holidays business was the star performer, with annual earnings surging 32% to £250 million, seeing the group meet its earnings target early.

This resulted in the group hiking the earnings target for its holidays arm to £450 million by 2029-30.

But annual headline profits at its airline dropped to £415 million from £420 million the previous year, and it said the carrier’s performance has been “more challenging” to improve than previously hoped, particularly over winter.

It said this was due to “the pace of route maturity and the wider geopolitical, macro-economic and competitive environment in specific markets”.

EasyJet cut seat capacity growth for its airline for the year ahead to around 7%, down from 9% in 2024-25.

“We are convinced that our actions through winter are the right ones to drive productivity and utilisation benefits while ensuring that the airline is well prepared for the key summer season, which is vital to overall profit growth,” easyJet said.

Its holidays business grew customer numbers by a fifth to 3.1 million as revenues rose 27% thanks to an increase in average selling price of 5% to £698.

The group expects to grow holidays customers by 15% in the year ahead, with average prices set to increase by “high single digits”.

Shares in easyJet fell 3% despite the profits rise.

Aarin Chiekrie, equity analyst at Hargreaves Lansdown, said: “The outlook for the new year brought some mixed news.

“Winter losses are set to get worse, coming in around £30 million behind market expectations, as ongoing investment in its new strategic bases in Milan and Rome continues.”