# easyJet Capacity, fleet and cost structure plans

- Link: https://www.directorstalkinterviews.com/easyjet-capacity-fleet-and-cost-structure-plans/412825973
- Published: 2020-05-28T07:33:34+01:00
- Author: Amilia Stone

**easyJet plc **(LON:EZJ) has today updated the market on capacity, fleet and cost
structure plans.

**Fleet and capacity**

As announced last week, easyJet will resume flying on 15 June, servicing a small
number of routes where we believe there is sufficient customer demand to support
profitable flying. The initial schedule will comprise mainly domestic flying in 
the UK and France. 

Further routes will be announced as customer demand increases and government restrictions
across Europe are relaxed. So far, the booking trends on the resumed flights have
been encouraging, and the demand indications for summer 2020 are improving, albeit
from a low base. Bookings for winter are well ahead of the equivalent point last
year, which includes customers who are rebooking coronavirus-disrupted flights for
later dates. 

Regarding fiscal Q4 2020 capacity, current plans are that easyJet expects to fly
around 30% of the planned capacity flown in Q4 2019. This will continue to be evaluated
reflecting changing regulations and customer demand. Our commercial planning and
data science teams continue to work through different demand scenarios as we move
through summer and into winter 2020/21.

Looking further forward, easyJet expects its year end 2021 fleet size to be at the
bottom end of our fleet range at around 302 aircraft, which is 51 aircraft lower
than the anticipated fleet size for year end 2021 which was reported to the market
prior to Covid-19. This fleet number will include c.3-4% of un-crewed standby aircraft
during peak. The reduction in fleet size will be achieved through the measures previously
announced, including the deferral of new aircraft deliveries and the re-delivery
of leased aircraft.

In line with IATA projections, easyJet believes that the levels of market demand
seen in 2019 are not likely to be reached again until 2023. Our fleet deal with 
Airbus gives easyJet the flexibility to react to the different circumstances and
varying demand environments which we may be faced with in the coming period. However,
as a low cost airline with a strong network, we believe we are well placed to benefit
from customers seeking great value during that recovery period. 

**Rightsizing the airline and cost structure**

To effect the restructure of our business, easyJet will shortly launch an employee
consultation process on proposals to reduce staff numbers by up to 30%, reflecting
the reduced fleet, the optimisation of our network and bases, improved productivity
as well as the promotion of more efficient ways of working. We will launch the consultation
process in the coming days.

easyJet is also continuing to take decisive action in other cost lines to remove
cost and non-critical expenditure from the business at every level. Some of the 
areas of focus are:

·    Airports & ground handling – our teams are in active consultation with airports
and ground handlers regarding revised contracts to reduce costs

·    Maintenance – swift action was taken to defer time-dependent maintenance spend
due to reduced flying and our teams are continuing discussions with suppliers

·    Selling and marketing – our commercial teams are renegotiating spend with agencies
and prioritising on the most effective activities to optimise traffic and sales 
as we look to restart flying

Whilst we have also undertaken cost cutting measures within easyJet holidays, it
maintains a high proportion of variable costs, which will flex with revenue, and
has no inventory risk.  

We also continue to focus on minimising non-essential capex spending.  As previously
outlined, our gross capex expectations are for c.£900m in 2020 (of which c.£350m
remaining in H2), c.£600m in 2021 and c.£1,000m in 2022 (subject to auditor review).
The majority of the anticipated capital expenditure in aggregate across H2 2020,
FY2021 and FY2022 relates to aircraft lease payments treated as capital cashflows
under IFRS16 as well as maintenance expenditure on existing aircraft and other IT
related capital expenditure.  Maintenance expenditure will be subject to restart
phasing, the level of FY21 and FY22 flying and the quantity of operating lease redeliveries
to lessors.  A significant level of IT expenditure in FY21 and FY22 is discretionary
and also subject to further review. 

**Funding**

As announced recently easyJet has signed two term loans totalling c.£400m, with 
both loans maturing in 2022 and secured against aircraft assets. We also successfully
issued £600m of Commercial Paper through the Covid Corporate Financing Facility (
CCFF) as well as fully drawing down on a $500m Revolving Credit Facility, secured
against aircraft assets.  

Furthermore we continue to engage with an active lessor market interested in acquiring
aircraft from easyJet’s fleet on a sale and leaseback basis. Announcements on the
progress of these engagements will be made in due course, with anticipated proceeds
now expected to be in the range of £500-£650m. 

Upon closure of all these funding initiatives, we expect to have generated total
additional liquidity of c.£2.0bn with our cash burn during grounding being broadly
in line with our estimates published in April.

**Biosecurity measures**

Alongside the resumption of services, easyJet also announced a range of new measures
to help ensure the health and wellbeing of both customers and crew onboard. These
include:

·    Customers, cabin and ground crew will be required to wear masks

·    Enhanced cleaning and disinfection of easyJet aircraft

·    Availability of disinfectant wipes and hand sanitiser onboard

·    Initially, no onboard food service

The measures have been implemented in consultation with aviation authorities ICAO
and EASA, and in line with government and medical advice.

**Outlook**

At this stage, given the level of continued uncertainty, it is not possible to provide
financial guidance for the remainder of the FY20 financial year.  However, as shown
in this release, we continue to take every step necessary to reduce cost, conserve
cash burn, enhance liquidity, protect the business and ensure it is best positioned
on our return to flying.  

easyJet will release half year results (for the six months to 31 March 2020) on 
30 June 2020. 

> **Johan Lundgren, easyJet CEO said:**
> “We realise that these are very difficult times and we are having to consider 
> very difficult decisions which will impact our people, but we want to protect 
> as many jobs as we can for the long-term. 
> “We remain focused on doing what is right for the company and its long-term health
> and success, following the swift action we have taken over the last three months
> to meet the challenges of the virus. Although we will restart flying on 15 June,
> we expect demand to build slowly, only returning to 2019 levels in about three
> years’ time. 
> “Against this backdrop, we are planning to reduce the size of our fleet and to
> optimise the network and our bases. As a result, we anticipate reducing staff 
> numbers by up to 30% across the business and we will continue to remove cost and
> non-critical expenditure at every level.  We will be launching an employee consultation
> over the coming days.
> “We want to ensure that we emerge from the pandemic an even more competitive business
> than before, so that easyJet can thrive in the future.”

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