· 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
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."
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.
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.
Number of flights
Peak operating aircraft
Passengers (thousand) 1
Seats flown (thousand)
% of FY2019 capacity flown
Load factor 3
easyJet remains extremely disciplined in focussing on profitable flying. Our operations, financial and commercial teams are running dynamic schedule updates, with a two to four week lead time, in order to capitalise on all available demand. We retain significant operational flexibility to enable us to capture pent-up demand and are able to ramp up flying quickly when demand returns.
We see significant capacity leaving primary airports around Europe as legacy carriers are dramatically scaling back their short haul operations. Competition at bases such as Paris, Milan, London Gatwick and Geneva is expected to be very much diminished, with competitors' aircraft being retired. easyJet is uniquely positioned to strengthen its positions at these primary airports, where we have very high head-to-head overlap and generate our best returns due to scale. Legacy carriers operated 71 million seats on easyJet routes in the 2019 financial year.
easyJet announced in December that it plans to expand its largest base, at London Gatwick, with additional aircraft, new routes and higher frequencies. Having recently obtained further slots in a trade with Norwegian, easyJet will increase its fleet at London Gatwick by four additional aircraft for Summer 2021. These aircraft will serve new routes including Aberdeen, Bilbao and Cagliari for next summer, as well as more frequent flying on existing domestic and international routes. easyJet now expects to offer 107 destinations from London Gatwick across 28 countries from summer 2021 and base 71 aircraft there.
This summer easyJet is opening seasonal bases in Malaga and Faro, following the successful opening of our seasonal Palma base in 2016. This will allow us to build scale in key leisure markets whilst managing seasonality. The new seasonal bases will expand our network breadth, to serve attractive source markets and will unlock scheduling advantages in addition to operational flexibility and cost advantages, which will have a significant positive impact on margins. We have been oversubscribed with applications for the new seasonal bases.
easyJet's market-leading flexible customer policies are driving trust and confidence to book. We are offering more flexibility than ever before, with freedom to change flights online without fees up to 14 days before departure.
Our Protection Promise for both flights and holidays means that customers can book now with the confidence that if their plans change, so can their booking. This includes a Refund Guarantee for flights or holidays if they are cancelled plus a full refund for holidays if a customer changes their mind up to 28 days before and - unlike other airlines - with our Travel Ban Protection customers can also receive a refund for non-cancelled flights if plans are impacted by travel bans in a regional or national lockdown; the Freedom To Change flights without a fee up to 14 days before departure, and change a holiday up to 28 days before departure; and if quarantine measures come in to place last minute, our Quarantine Assurance also means impacted flights can be changed without a change fee.
High customer satisfaction scores continued into Q1, with overall satisfaction scores of 83%, which is 5.8 percentage points ahead of Q1 last year. Customers' perception of how we have handled COVID has reached a high in Q1. Our Customer Management Centres have seen huge volumes of calls during the pandemic yet have achieved record customer satisfaction scores both at an overall level and with our agents.
easyJet remains the first choice LCC in the UK, France and Switzerland. In the UK our brand preference remains strong with a clear gap to the next best LCC. We are rated best value airline in the UK and France, ahead of legacy carriers and LCCs, and in Italy and Switzerland we are ranked best value LCC.
Ancillary revenues represent a significant opportunity for easyJet to increase revenue per seat and margins in the coming years.
Today easyJet has launched a new fare class called Standard Plus which makes it easier for customers to buy a package which includes Up front seat selection, access to easyJet Plus Bag Drop, Speedy Boarding, one cabin bag and an additional under seat cabin bag in one easy step on the website. We had identified a gap in our current propositions in terms of fare offerings and during testing the new fare class has meaningfully increased average booking values.
Our cabin bag policy is changing, with effect from February 2021. The ability to bring a large overhead cabin bag on board is going to be bundled with Up front and Extra legroom seating. The seating and bag packages will be actively yield managed and will be dynamically priced from £7.99 per bag per flight.
We are continuing to build on our unique position within the holidays sector, offering package holidays at great prices through to the end of March 2022 and providing confidence to book through our industry leading 'Protection Promise'.
Our purpose-built, highly scalable business model ensures low fixed costs (93% variable) and strong marginal profit contribution. We continue to enjoy strong partnerships with leading hotels without the need for financial commitments or inventory risk. During Q1 we signed a further 35 high quality hotels which were previously under exclusive contracts with our competitors.
Four- and five-star hotels now account for c70% of all holidays sold and these hotels generate a margin premium. Our low cost base ensures that we are able to offer outstanding value, with c75% of our holidays offering the best value in the market on like-for-like searches, whilst still providing strong marginal profit contribution.
Holidays for Winter 2021/22 were launched in December and are experiencing very positive demand. Bookings for Summer 2021 are currently significantly ahead of last year, although it is evident that many customers are looking for further certainty around quarantine rules prior to booking.
As previously announced, easyJet has agreed with Airbus the deferral of aircraft from Financial Years 2022, 2023 and 2024. A total of 22 aircraft will be moved from FY2022-FY2024 to FY2027-FY2028. In addition, there will be movement of 15 delivery dates within the period FY2022-FY2024 to more closely match forecast seasonal requirements.
As communicated previously, all aircraft purchased by easyJet under the terms of the original 2013 Airbus agreement are subject to a discount from list price, which remains unchanged. Within the 2013 agreement a price escalation mechanism is used to reflect market inflation in labour and material costs5 and as such the future aggregate cash price of the aircraft subject to deferrals will increase6. The changes also result in a re-phasing of the pre-delivery payment cash flows of the orderbook due to the later dates of delivery.
There is no change to the total number of firm Airbus A320 NEO family aircraft outstanding orders.
This latest amendment to our longstanding agreement with Airbus reflects easyJet's significant fleet flexibility as well as the benefit of highly attractive aircraft pricing. In this period of uncertainty, this flexibility will enable us to flex our fleet size in response to customer demand.
Sale and Leaseback
easyJet has completed sale and leaseback transactions generating total gross cash proceeds of $1,026 million (c.£779 million) during the first quarter. The transactions across 32 aircraft have increased the lease liability by a total of c.£492 million. easyJet entered these transactions with a number of counterparties including SMBC Aviation Capital, as already discussed at our FY results. Following these transactions, we retain ownership of 55% of the total fleet, with 38% unencumbered. We are not currently considering any further large-scale sale and leaseback transactions.
Balance sheet & liquidity
easyJet announced this month the continued strengthening of its liquidity position with the signing of a new five-year term loan facility of $1.87 billion (c.£1.4 billion) underwritten by a syndicate of banks and supported by a partial guarantee from UK Export Finance under their Export Development Guarantee scheme. The Export Development Guarantee scheme for commercial loans is available to qualifying UK companies, does not carry preferential rates or require state aid approval, and contains some restrictive covenants including around dividend payments, however these are compatible with easyJet's existing dividend policy.
This five-year facility secures on aircraft upon drawing and has significantly extended and improved easyJet's debt maturity profile and strengthened easyJet's balance sheet by increasing the level of available liquidity.
easyJet has taken swift and decisive action to successfully raise over £4.5 billion in liquidity, including this facility, since the beginning of the pandemic, from a diversified range of funding sources.
easyJet also announced that it has repaid and cancelled part of its shorter term debt, namely the fully drawn Revolving Credit Facility of $500 million and Term Loans of c.£400 million. This frees up a number of aircraft assets to further strengthen easyJet's balance sheet and materially extends the maturity profile of secured borrowing.
easyJet retains a strong, investment grade balance sheet. As at 25 January, following the repayment of the Revolving Credit Facility and Term Loans, easyJet has unrestricted access to c.£2.5 billion of liquidity.
As previously indicated, easyJet will continue to review its liquidity position on a regular basis and will continue to assess further funding opportunities, should the need arise.
Fuel & FX hedging
Due to the full grounding of the fleet in March 2020 and the lower capacity thereafter, easyJet became significantly overhedged from both a jet fuel and FX perspective. To mitigate the effects of overhedging a number of actions have been taken, including putting jet fuel hedging on hold for time periods through to October 2021. US dollar and jet fuel hedging continues for later time periods. Excluding those hedges that are ineffective, our expected 2021 financial year jet fuel requirement is currently around 77% hedged at $603 per metric tonne and our expected 2022 financial year jet fuel requirement is currently around 46% hedged at $486 per metric tonne.
Based on current travel restrictions in the markets in which we operate, easyJet expects to fly no more than c.10% of Q2 2019 capacity for the second quarter of the 2021 financial year.
The European slot waiver mechanism in place for this winter enables us to best match our capacity against the lower demand that currently exists. Discussions are underway by both the European Commission and the UK regarding a revised slot waiver for the Summer 2021 season. We remain focused on cash generative flying in order to minimise losses and cash burn. We retain the flexibility to ramp up capacity quickly when we see demand return.
At this stage, given the continued level of short-term uncertainty, it would not be appropriate to provide any further financial guidance for the 2021 financial year. Customers are booking at a later stage and visibility remains limited.
easyJet was well prepared for Brexit and as a result did not experience any operational problems following Brexit coming into effect.
On 23 December 2020, easyJet announced that the Board had passed resolutions as part of its contingency plan to ensure continued compliance with EU ownership and control requirements following the end of the Brexit transition period on 31 December 2020. In particular, the Board resolved to set a Permitted Maximum of Relevant Shares of 49.5%. The Permitted Maximum represents the maximum permitted level of ownership of easyJet's shares by Relevant Persons7.
As at 1 January 2021, easyJet's level of ownership by EU Persons8 was 47.35% and the level of ownership by Relevant Persons was 52.65%. Accordingly, and in line with its contingency plan, easyJet announced on 4 January that it has commenced steps to suspend voting rights in respect of certain shares ('Affected Shares') held by Relevant Persons in accordance with easyJet's articles of association (the 'Articles') so that a majority of the voting rights in easyJet are held by EU Persons. Any such Relevant Persons will be receiving Affected Share Notices from easyJet. The voting rights suspension is being applied on a 'last in, first out' basis such that the shares most recently acquired by Relevant Persons will have voting rights suspended first.
KEY Q1 FINANCIALS
Three months ended
31 Dec 2020
31 Dec 2019
Number of flights
Peak operating aircraft
Passengers (thousand) 1
Seats flown (thousand)
Load factor 3
Total group revenue (£ million)
Total group headline cost (£ million)