EasyJet narrows losses

easyJet (EZJ) has reported a “record bounce back” in demand after two years of Covid disruption. While the budget airline has yet to return to profitability, it has narrowed its pre-tax loss to just £208mn, compared with losses in excess of £1bn in 2020 and 2021. 

Revenue at the low-cost airline almost quadrupled in the year to 30 September 2022. Passenger sales jumped by 282 per cent to £3.82bn as more people travelled abroad, and ‘ancillary’ revenue –  the extra fees charged for luggage and seat reservations, plus other services – shot up by 326 per cent to £1.95bn. This compares with just £1.38bn in 2019. 

Other elements of easyJet’s performance compared less favourably with pre-pandemic figures, however. Total revenue for 2022 was still 10 per cent lower than in 2019, while passenger numbers were down by 27 per cent at just under 70mn. The group’s ‘load factor’ – the number of passengers as a percentage of the number of seats flown – was also 6 percentage points lower than pre-Covid levels, at 85.5 per cent.

This delicate stage of easyJet’s recovery has coincided with a difficult inflationary environment. Fuel cost per seat has increased by 16 per cent since 2019 to £15.68, and management expects the price of fuel to rise by more than 50 per cent in the first half of 2023. As only three-quarters of easyJet’s fuel is hedged in this period – falling to 51 per cent in the second half – this is likely to put some serious pressure on the group’s cost base. 

On top of this, easyJet reported ‘incremental disruption costs’ of £78mn – which Peel Hunt analysts attributed to a lack of staff at easyJet and at airports – and one-off costs of £21mn relating to the sale and leaseback of 10 aircraft. These costs, together with finance charges and foreign exchange losses, ultimately dragged easyJet back into the red.

There are reasons to be cheerful. though. The final quarter of its current financial year has been very strong, with the airline reporting “record” Ebitdar of £674mn (the ‘r’ of Ebitdar refers to aircraft rental). Management has also reported promising Easter ticket sales, and is trying to ramp up summer resilience by recruiting more staff now. However, visibility over bookings in the second half remains low, and the cost of living crunch could ultimately weigh on demand for flights to holiday locations. Meanwhile, the cost of fuel is almost guaranteed to cause turbulence in 2023. Hold.

Last IC View: Hold, 490p, 19 May 2022