LONDON—UK LCC easyJet is planning to operate up to 60% of its pre-pandemic capacity in its fiscal 2021 fourth quarter (Q4), with Airbus A320neo deliveries resuming this fall.
“At the end of [fiscal] 2020, we had 342 aircraft, so we’re taking that down by 10%,” easyJet CFO Kenton Jarvis told delegates on a July 20 trading update call, covering the fiscal 2021 third quarter (Q3) ended June 30.
“So, at the end of 2021, we should have 307 aircraft operable in the fleet. As we move forward for full-year 2022, we’re looking to increase that to 317 aircraft to meet the demand we see coming in, but also to take advantage of post-pandemic network opportunities.”
The LCC has 101 A320neo family aircraft on order, plus 20 purchase options and 58 unexercised purchase rights. EasyJet disclosed that eight A320neos will be delivered in fiscal 2022, followed by another seven in fiscal 2023 and 18 in fiscal 2024.
Bernstein analyst Daniel Roeska observed that this is toward the higher end of easyJet’s fleet scenarios for 2022—positioning the carrier to take advantage of pent-up demand and network opportunities.
EasyJet is also renegotiating terms on some of its leased aircraft, with 38 aircraft coming to the end of their lease terms over the coming 15 months. “We have already committed to extend some of these aircraft on very favorable operating lease conditions,” easyJet said.
Beyond this, easyJet is looking to seize the opportunity to “selectively acquire” primary airport slots. “We have recently acquired slots in Milan-Linate, Amsterdam-Schiphol and Paris-Orly,” the airline confirmed.
EasyJet is anticipating “a relatively benign pricing environment” over the coming months and high levels of pent-up demand in summer 2022. Visibility for the remainder of the year remains limited because of constantly changing travel restrictions and late-booking patterns.
During fiscal Q3, easyJet’s capacity was just 17% of 2019 levels (in 2020, the airline was barely operational). In fiscal Q4, easyJet plans to operate 60% of 2019 capacity, with 60% of this deployed on intra-EU routes.
Even though easyJet opened 12 new domestic UK routes following regional carrier Stobart Air’s collapse on June 12, summer 2021 bookings have been “heavily skewed” toward continental Europe. UK-touching capacity is 44% sold (compared with 69% at this point in 2019), while intra-EU capacity is 53% sold (down from 64% in 2019).
Speaking on the trading update call, easyJet CEO Johan Lundgren said capacity that was originally planned for the UK has therefore been redeployed to Scandinavia and mainland Europe.
“Basically, 60% of [marketed] capacity is not touching UK soil. Looking at the bookings coming in on a daily basis, about two-thirds are related to [flights] outside UK. Normally we would be at 50:50 levels,” Lundgren said. “This is really all down to the clarity and the confidence around the travel restrictions.”
Lundgren said he does not understand why the UK is imposing special quarantine restrictions for double-vaccinated travelers inbound from France, which is on the Amber list. This goes beyond normal Amber restrictions, leading to this new level to be dubbed “Amber Plus.”
“It isn’t clear to me why this new category should have been [put] in place,” Lundgren said. However, he added that UK-France represents just 2.5% of easyJet’s fiscal Q4 capacity plan.
Lundgren was also quizzed on why easyJet appears to be returning capacity more cautiously than LCC rivals Wizz Air and Ryanair.
“You need to read up on the stats,” Lundgren said. “We’ve launched more routes than the two of them together. There’s a lot of noise out there ... we have increased our position at primary airports, where they’ve been talking about it. There’s a difference between talk and action ... if you go back and look at what we estimated capacities to be—what we’ve actually flown, compared with those airlines you mentioned—we’ve been far more accurate.”
Fiscal Q3 Performance
Overall, easyJet posted a fiscal Q3 pre-tax headline loss of £318.3 million ($436.3 million), which was a 8.2% improvement on fiscal Q3 2020. This was based on 3 million passengers and 4.5 million seats of capacity generating £212.9 million in revenue–up from £7.2 million in the comparable prior-year quarter. EasyJet’s load factor stood at 66%.
Quarterly cash burn fell to £55 million, while fixed costs plus capex averaged £34 million per week, outperforming the £40 million guidance given during the fiscal first quarter. Net debt remained “broadly flat” at around £2 billion and, as of June 30, easyJet had unrestricted access to around £2.9 billion of liquidity. EasyJet said its £500 million cost-savings program for fiscal 2021 remains “on target.”
Roeska from Bernstein said easyJet’s fiscal Q3 performance was broadly in line with expectations. “Q3 was a wash, as expected,” he said, but Roeska described easyJet’s plans for a “significant” capacity ramp up as “highly encouraging,” taking the LCC from 17% to 60% of 2019 levels.
“EasyJet is targeting 60% of 2019 levels of capacity in Q4, which suggest around 18 million seats, or c.50% more than last summer. This is an encouraging data point for the travel recovery, particularly given easyJet’s typically more cautious stance on capacity restoration versus the other two large point-to-point airlines in Europe,” Roeska said, giving easyJet an “outperform” rating.
Investment bank Goodbody is forecasting that easyJet’s passenger numbers will reach 83 million next year and 100 million in fiscal 2024, setting the company up for a record profit.
“Concerns over short-term financing needs are misplaced, with operating cash burn lower than expected,” Goodbody airline analyst Mark Simpson said.
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