EASYJET TRADING STATEMENT FOR THE QUARTER ENDED 31 DECEMBER 2020
· Q1 performance in line with expectations due to continued discipline and flexibility
· Strengthened liquidity, investment grade rating maintained and structural cost out programme delivering and on track
· Government restrictions and uncertainty impacting demand
· Brand strength, network and operational flexibility ensure easyJet is well positioned to capture demand when it returns
Summary
Over the course of the pandemic easyJet has responded decisively having successfully reset the cost base and driven down costs in all areas of the business. easyJet has maintained its strong, investment grade balance sheet, improved its debt repayment profile and secured further liquidity through a new c.£1.4 billion loan facility. All these actions will see the airline emerge from the pandemic more efficient, with its cost base reset.
easyJet's first quarter financial performance was in line with management expectations despite increased uncertainty due to the changing environment which saw strengthened travel restrictions across Europe. These restrictions and the continued uncertainty regarding their future removal are the main driver of decreased customer demand. Despite this we have successfully maintained our disciplined focus and agile approach on matching capacity to available demand while maintaining high customer satisfaction.
Subject to continued progress on vaccinations, together with the future relaxation of government travel restrictions across Europe, we are anticipating a release of pent-up demand for travel. Research by easyJet conducted among 5,000 European consumers between 8 and 20 January this year showed that 65% have or plan to make a travel booking in 2021, with existing easyJet customers even more likely to travel rising to almost three quarters planning a trip this year. We retain the flexibility to rapidly ramp up to capture that demand.
In addition to this, due to the airline's network of primary airports and trusted brand, easyJet is uniquely placed to take advantage of the material reduction in competitor capacity at our key bases. We continue to invest in the right opportunities - we are growing at Gatwick and will have a record 71 aircraft based there this summer and our initiatives in ancillaries and easyJet holidays are expected to generate material opportunities for future profit growth.
Commenting, Johan Lundgren, easyJet Chief Executive said:
"Our performance in the period was in line with management expectations, despite more stringent restrictions coming into place.
"We have taken the right actions to emerge leaner with a reduced cost base and the retrenchment of legacy carriers at key airports will provide additional opportunities for easyJet.
"Our core strengths remain unaffected by the pandemic - we have loyal customers who know and trust our brand, an unmatched network, offer value for money and a leading position on sustainability with high customer satisfaction.
"The key to unlocking travel is going to be the vaccination programmes combined with governments progressively removing restrictions when it is safe to.
"And in the meantime, our flexible industry-leading policies mean that customers can make plans and book with confidence."
Revenue
Passenger1 numbers in the quarter decreased by 87% to 2.9 million, in line with a decrease in capacity2 of 82% to 4.4 million seats, representing 18% of FY2019 capacity levels. Load factor3 decreased by 26 percentage points to 66%.
Total group revenue for the quarter ending 31 December 2020 decreased by 88% to £165 million. Passenger revenue decreased by 90% to £118 million and ancillary revenue decreased by 84% to £47 million.
Costs & Cash Burn
easyJet's underlying cost performance for the quarter was in line with expectations. Group headline costs excluding fuel were reduced by 52% at constant currency4 as material savings were achieved across many areas of the business, including airport fees, ground handling, crew and maintenance costs.
The structural cost-out programme we announced last year, easyJet's largest ever, is delivering and on track to achieve our targeted in-year cost savings and will re-set our cost base and support improved margins. This will position the business to emerge from the pandemic in an even more competitive position for the long term.
As a result of these actions, which are set out in more detail below, we estimate that going forwards our fixed cost and capex cash burn in a fully grounded scenario has now fallen to around £40 million per week.
As part of this cost out programme easyJet launched an employee consultation process on proposals to reduce employee numbers by up to 30%, including optimising our network and bases, improving productivity and promoting more efficient ways of working.
In the UK, agreements have been reached with unions, around 1,400 affected staff have left the business and the targeted cost savings having been achieved. The majority of UK-based pilots now have seasonal contracts. Furlough arrangements are in place to ensure we maximise the use of this scheme.
In Germany, union and works council agreements have been finalised, a high proportion of the redundancies have been issued and extended long-term furlough arrangements are in place. We continue to work with the German works council in order to try to mitigate further redundancies. In Spain, Portugal and the Netherlands restructuring has been finalised, pay freezes have been agreed and furlough arrangements are in place. While the consultation process in Switzerland continues we have reached a long term agreement there including pay freezes and furlough. Discussions with the unions and works councils have now begun in France and Italy, where furlough arrangements are also in place.
New ground handling contracts have been concluded at London Gatwick and for all of our Swiss and Spanish airports. These new contracts achieve significant cost savings, in addition to improvements in On Time Performance (OTP) and incentives for the proper implementation of our new baggage policy.
Line maintenance at three of our UK bases has been brought in-house with costs expected to decrease as a result. We also expect that quality will increase, leading to lower incidence of defects from overnight checks, which have an impact on first wave OTP. We are in ongoing discussions regarding outsourced arrangements for heavy maintenance.
We are achieving reductions in fuel usage of c.1.5%, which not only improves our cost profile but also lowers our carbon emissions. The measures we are taking to improve fuel efficiency include the use of single-engine taxi on arrival and departure; using advance weather information to improve navigation and optimise routing to avoid poor weather and headwinds; and optimising climb speed on takeoff to get to a more fuel-efficient phase of flight sooner.
Capacity
During Q1 easyJet flew 18% of FY2019 capacity. This is in line with our expectation that we would fly no more than c.20% of FY2019 capacity. Our capacity forecasting has been accurate and disciplined throughout the pandemic, which has allowed for strong cost control.
