easyJet Trading Update for the year ending 30 September 2020
Summary
During its fourth quarter easyJet carried more than nine million customers, with enhanced bio security measures in place across its full flight schedule which, along with punctuality of 94%, led to high customer satisfaction during the period.
easyJet has operated a disciplined flying programme over the summer alongside launching a major restructuring programme. easyJet remains focused on cash generative flying over the winter season in order to minimise losses and cash burn during the first half of FY21. easyJet has raised over £2.4 billion in cash since the beginning of the Covid-19 pandemic and is well positioned to weather the ongoing challenging environment and capitalise on a recovery, once government travel restrictions are eased.
Johan Lundgren, CEO of easyJet, said:
"At the beginning of this year, no one could have imagined the impact the pandemic has had on the industry. easyJet has adapted and risen to the challenges presented by the pandemic by taking decisive actions to minimise losses, bolster liquidity and reduce cash burn while launching a major restructuring programme, having completed the UK consultation and commenced consultations in a number of key countries.
"Throughout we have taken a very prudent and conservative approach to capacity and this disciplined approach has seen us deliver a better than expected cash burn outcome in Q4 and will see us continue to focus on profitable flying over the winter season in order to minimise losses and cash burn during the first half of 2021.
"Based on current travel restrictions we expect to fly c.25% of planned capacity for Q1 2021 but we retain the flexibility to ramp up capacity quickly when we see demand return and early booking levels for summer '21 are in line with previous years.
"Aviation continues to face the most severe threat in its history and the UK Government urgently needs to step up with a bespoke package of measures to ensure airlines are able to support economic recovery when it comes.
"easyJet came into this crisis in a very strong position thanks to its strong balance sheet and consistent profitability. This year will be the first time in its history that easyJet has ever made a full year loss.
"I would like to thank everyone at easyJet who has worked tirelessly to manage through this period. I believe that, as a result, and due to our decisive response to the pandemic, we are well positioned for the recovery".
Revenue
Passenger numbers1 for the full year decreased by 50% to 48 million, in line with a decrease in capacity2 of 48% to 55 million seats. Load factor for the full year will decrease by 4.3 percentage points to 87.2%.
Capacity in the fourth quarter was 38% of previously planned levels with easyJet flying nine million passengers during the period with a load factor of 76.3%. Total group revenue for the quarter ending 30 September was c.£620 million.
Cost / Cash burn
Total headline cost for the full year decreased by c.36% to c.£3,840 million, mainly driven by a decrease in capacity flown. Despite the constantly evolving travel restrictions across Europe and resultant impact on customer demand, easyJet maintained a disciplined approach to capacity and cash management. As a result, total cash burn during the fourth quarter is expected to be less than £700 million, which compares favourably to the £774 million in Q3.
As previously announced, easyJet has launched a major restructuring and cost-out programme to drive down costs in all areas of the business. Removing cost from the business is a key management priority and will position easyJet to emerge from the pandemic in an even more competitive position for the long term.
As part of this restructuring programme easyJet launched an employee consultation process on proposals to reduce staff numbers by up to 30%, including optimising our network and bases, improving productivity and promoting more efficient ways of working.
The UK consultations with management and administration staff, UK cabin crew and UK pilots have now concluded successfully. Discussions with the relevant unions and works councils were constructive and have resulted in greatly increased seasonal and flexible working patterns whilst avoiding the need for compulsory redundancies. This will make a material difference to our annual cost base and cash burn, particularly over the winter months. The targeted UK cost savings have been achieved, plus our future UK winter crew cost base has the ability to be flexed down materially in line with demand.
Consultation processes are underway in Germany, Portugal and Switzerland.
There will be a non-headline charge of around £120 million taken in H2'20 relating to restructuring. The continuing availability of furlough schemes in continental European markets, in addition to the more variable contracts which were proposed by our unions in the UK, will enable us to conserve cash over the winter months whilst thinning our schedules far more than ever before to allow us to match capacity with customer demand.
Fuel & FX
easyJet's total fuel cost for the financial year 2020 is expected to be around £720 million. The non-headline charge which will be taken in H2'20 related to discontinued hedges and hedge ineffectiveness will be around £145 million.
Total headline foreign exchange will have a year-on-year positive impact of around £30 million.
Capacity
During Q4 easyJet flew 38% of planned capacity. Flying peaked in August and then tapered significantly during September when customer demand was materially affected by changes in government travel guidance and quarantine rules. Customers are booking at a very late stage and visibility remains limited.
easyJet remains extremely disciplined in focussing on profitable flying. We typically thin our route frequencies during winter and will do so much more significantly this year. Our operations, financial and commercial teams have been working on dynamic schedule updates, with a two to four week lead time, in order to capitalise on all available demand.
Network
easyJet's market-leading European short haul network is focused on number one and two positions at primary airports and enables us to be efficient with our network choices, with an emphasis on maximising returns. The scale and flexibility of our network will provide us with opportunities to take advantage of changes in the competitive landscape during the recovery phase. easyJet will act quickly to selectively acquire attractive slots made available in locations where the opportunity arises. As part of the restructuring programme easyJet has closed its bases in Southend, Stansted and Newcastle, although Stansted and Newcastle continue to be served on an inbound flying basis. As part of this optimisation of bases, easyJet will be opening seasonal bases in Malaga and Faro during summer '21.
Customer demand has shifted rapidly over the summer amongst our many different leisure destinations, influenced largely by which countries and regions are quarantine-free. Increasing travel restrictions have once again suppressed customer demand for this autumn, with late customer booking patterns leading to visibility remaining limited. Early booking levels for summer '21 are in line with previous years.
Liquidity
easyJet has taken swift and decisive action to raise over £2.4 billion in cash since the beginning of the Covid-19 pandemic, from a diversified range of funding sources including debt and equity. Following the conclusion in August of the £608 million sale and leaseback programme, around 50% of the fleet remains unencumbered. easyJet expects to have 337 aircraft in the fleet as at end October.
These measures have further underpinned easyJet's liquidity position and credit metrics while also enhancing our balance sheet strength to provide a significant liquidity buffer. With a cash position at 30 September 2020 of c.£2.3 billion, combined with the actions which we are taking on thinning our routes in Q1 and removing cost, it will enable us to conserve cash over the winter months. As previously indicated, easyJet will continue to review its liquidity position on a regular basis and will continue to assess further funding opportunities, including sale and lease backs, should the need arise.
As at 30 September 2020 our net debt position was £1.1 billion (30 September 2019: £326 million) including cash and cash equivalents of c.£2.3 billion.
Outlook
easyJet expects to report a group headline loss before tax in the range of £815 to £845 million for the financial year 2020. easyJet's group headline loss in Q4 is therefore expected to be lower than the loss in Q3. Non-headline items of around £440 million are expected to be recognised in the financial year 2020 incorporating hedging ineffectiveness, easyJet's restructuring programme, impairment of short term lease contracts and gains from sale and lease back transactions. In line with easyJet's dividend policy and in light of the expected loss, the board will not be recommending the payment of a dividend in respect of the year to 30 September 2020. Full results for the year ended 30 September 2020 will be reported on 17 November 2020.
Based on current travel restrictions in the markets in which we operate, easyJet expects to fly c.25% of planned capacity for Q1 2021. We will cover the majority of our pre-existing network with reduced frequency, taking advantage of the European slot waiver mechanism put in place for this winter to best match our capacity against the lower demand that currently exists. We remain focused on cash generative flying over the winter season in order to minimise losses during the first half. We retain the flexibility to ramp capacity back up 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 financial guidance for the 2021 financial year.
PLC Board update
Further to the recent announcement that Moya Greene DBE has decided that she will not be standing for re-election at the Company's next AGM, we are pleased to confirm that Moni Mannings will succeed Moya as Chair of the Remuneration Committee with immediate effect.