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Turbulent times for easyJet

The airline has reported its second annual loss of more than £1bn after passenger numbers plunge.
Turbulent times for easyJet
  • Company faces uncertainty over Omicron variant
  • But management reports "good" levels of new bookings

It has been a miserable 18 months for airlines. easyJet (EZJ) is no exception, reporting a loss before tax of £1.14bn for the year. Meanwhile, hopes of a post-pandemic bounce-back have yet to materialise, as the company encounters yet another hurdle: the Omicron coronavirus variant. 

Passenger numbers have fallen by almost 60 per cent, and capacity has decreased to 28.2m seats from 55.1m in 2020, when global lockdowns were first imposed. To make matters worse, Omicron is now threatening "softening" demand in the first quarter of 2022 as the possibility of new travel restrictions looms. 

Management is optimistic. It said there are "good" levels of new bookings for the second half of the year, and still expects the fourth quarter of 2022 to see a return to near pre-pandemic levels of capacity as people embark on their long awaited summer holidays. 

Research by HSBC found that in a favourable scenario where vaccines are effective against Omicron, there will be only a one-quarter delay to a travel recovery. However, in a middle scenario of “somewhat degraded” effectiveness, it assumes a six-month delay to recovery and, in an unfavourable scenario, it predicts a full-year delay.

Liquidity will be key to airlines’ survival. As at 30 September 2021, easyJet has unrestricted access to £4.4bn of liquidity. (The group raised £1.2bn in a September rights issue, which is designed to protect the company against further Covid-29 restrictions.) Meanwhile, it has no other debt maturities outstanding until the 2023 financial year. 

However, its total borrowings have reached an eye-watering £3.37bn, which will eventually come home to roost. 

In terms of costs, easyJet managed to save £512m in 2021, almost half of which it describes as "sustainable". It also has expansion plans, adding slots at primary airports such as Gatwick and Milan, and has opened two additional seasonal bases in Malaga and Faro. “Radical” reallocation plans are on the cards, too, as the airline moves planes to higher contributing bases. 

However, much depends on the Omicron variant, and the threat it poses to vaccine effectiveness. Even if more travel restrictions are avoided, the new rules around PCR tests and self-isolation are likely to spook holidaymakers. easyJet may have a strong enough balance sheet to weather such challenges, but it’s not an appealing proposition for investors. Sell. 

Last IC View: Sell, 989p, 20 May 2021

EASYJET (EZJ)    
ORD PRICE:491pMARKET VALUE:£3.7bn
TOUCH:490.7-491.7p12-MONTH HIGH:922pLOW: 535p
DIVIDEND YIELD:nilPE RATIO:na
NET ASSET VALUE:348p*NET DEBT:34.5%
Year to 30 Sep Turnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20175.050.3977.440.9
20185.900.4590.958.6
20196.390.4388.643.9
20203.01-1.27-223nil
20211.46-1.04-159nil
% change-52---
Ex-div:na   
Payment:na    
*Includes intangible assets of £722m, or 95.2p a share