easyJet lands first annual loss

easyJet (EZJ) plunged into its first ever annual loss, having withstood a year of travel restrictions that saw its entire fleet grounded for 11 weeks. A halving of passenger numbers over the year to a total of 48.1m pummeled revenues and contributed towards what easyJet has described as the biggest cost-cutting exercise in its history.

easyJet cut ‘headline costs’, including airport fees and crew costs (but excluding fuel) by almost a third to £3.1bn. Its quarterly cash burn fell from £774m in its third quarter to £651m in the following period. But the airline racked up £438m in exceptional costs, which included £311m linked to the abandoning of fuel hedging and £123m in restructuring costs. 

As easyJet battled to prevent costs overwhelming dwindling income, it raised £3.1bn in cash to act as a buffer. As well as making use of existing borrowing facilities and government financing, the airline also sold and leased back 33 aircraft, raising £38m. It now owns 55 per cent of its fleet.

Consensus forecasts are for losses per share of 61.4p in 2021, followed by earnings per share of 56.9p in 2022.

The airline cautioned last month that it would record its first loss today. Prior notice combined with news of Pfizer’s coronavirus vaccine in early November have helped propel the shares upwards since its October warning. There’s some cause for long-term optimism, but easyJet is likely to find itself battling with other carriers over a reduced passenger base for years to come, while the variable nature of travel restrictions also leaves us unwilling to reconsider our rating. Sell.

Last IC View: Sell, 514p, 8 Oct 2020