# easyJet H1 2021 results slightly better than expectations

- Link: https://www.directorstalkinterviews.com/easyjet-h1-2021-results-slightly-better-than-expectations/412977293
- Published: 2021-04-14T07:26:18+01:00
- Author: Giles

**Summary**

**easyJet plc** (LON:EZJ) has operated a disciplined flying programme over the winter
months whilst continuing to deliver a major restructuring and cost reduction programme.
As a result, easyJet expects a first half headline loss before tax in the range 
of £690 to £730 million, which is slightly better than expectations.  The effects
of the cost-out programme will support improved margins and reduce seasonality for
the future.  Our capacity forecasting has been accurate and disciplined throughout
the pandemic, which has allowed for strong cost control.  Our focus on cash generative
flying over the winter season has minimised cash burn, with cash burn in the second
quarter better than guidance.

As at 31 March 2021 easyJet has unrestricted access to c.£2.9 billion of liquidity
having raised over £5.5 billion since the beginning of the pandemic^(1), and is 
well positioned to capitalise on the recovery of travel once restrictions are eased
across the network. 

easyJet has maintained a high level of operational flexibility to respond to rapidly-
changing travel restrictions.  We will continue to operate a reduced schedule throughout
much of Q3 but are ready to ramp up our operations to match the level of demand 
we see in the market.

> **Johan Lundgren, CEO of easyJet plc, said:**
> _“_ easyJet has maintained a disciplined approach to flying during the first half
> of our financial year, resulting in a first half loss and cash burn better than
> expectations.  We continue to have access to significant levels of liquidity alongside
> easyJet’s major cost-out programme which continues to deliver ongoing cost and
> efficiency benefits.  All of this positions us well to lead the recovery.
> “We welcome the confirmation by the UK Government that international travel is
> on track to reopen as planned in mid-May.  easyJet was founded to make travel 
> accessible for all and so we continue to engage with Government to ensure that
> the cost of the required testing is driven down so that it doesn’t risk turning
> back the clock and make travel too costly for some. 
> “We continue to closely monitor the situation across Europe and with vaccination
> programmes accelerating, most countries are planning to resume flying at scale
> in May.  We have the operational flexibility to rapidly increase flying and add
> destinations to match demand.  easyJet is ready to resume flying, prepared for
> the ramp up and looking forward to being able to reunite people with their families
> or take them on leisure and business flights once again.  As a result, we remain
> well-positioned for the recovery this summer and beyond.”

**Revenue**

Passenger numbers^(2) for the six months ending 31 March 2021 decreased by 89% to
4.1 million, in line with a decrease in capacity^(3) to 6.4 million seats, representing
14% of H1 2019 capacity levels. This led to total group revenue for the six months
ending 31 March 2021 decreasing by c.90% to c.£235 million, with passenger revenue
decreasing by c.91% to c.£165 million and ancillary revenue decreasing by c.87% 
to c.£70 million.

**Cost & Cash Burn**

Group headline costs excluding fuel for the first half decreased by c.59% to c.£
845 million, driven by a decrease in capacity flown and the material savings achieved
across many areas of the business from easyJet’s major cost-out programme.  easyJet
maintained a disciplined approach to capacity and cash management and as a result,
total cash burn during the second quarter was c.£470 million, which is better than
previous guidance.

The structural cost-out programme we announced last year, easyJet’s largest ever,
is on track to achieve our targeted cost savings and will position easyJet well 
to lead the recovery in aviation.  

**Capacity**

During the first half easyJet flew 14% of H1 2019 capacity, in line with our expectations.
Our capacity forecasting has been accurate and disciplined throughout the pandemic,
which has helped deliver strong cost control. 

**Network**

easyJet remains disciplined in focussing on profitable flying.  Our operations, 
financial and commercial teams are running dynamic schedule updates, on a regular
basis, 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. 

**Flexibility**

easyJet’s market-leading flexible customer policies are driving trust and confidence
to book.  We are offering more flexibility than ever before.  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.

**Ancillaries**

Ancillary revenues represent a significant opportunity for easyJet to increase revenue
per seat and margins in the coming years. 

In January easyJet launched a new fare class called Standard Plus, which is performing
well.  Our new cabin bag policy came into effect in February and early indications
show that this is also on track relative to our revenue expectations, as well as
having a positive effect on our On Time Performance metrics.  The ability to bring
a large overhead cabin bag on board is now bundled with Up front and Extra legroom
seating.  The seating and bag packages are actively yield managed and dynamically
priced from £7.99. 

**Balance Sheet & Liquidity**

easyJet has taken swift and decisive action successfully raising over £5.5 billion
in liquidity since the beginning of the pandemic^(1), from a diversified range of
funding sources. 

In March easyJet’s subsidiary easyJet FinCo B.V. issued a €1.2 billion bond under
our Euro Medium Term Note (EMTN) programme.  The bond matures in March 2028 and 
has a coupon of 1.875%.  There was good market appetite for the bond, which was 
heavily oversubscribed.  easyJet continues to maintain access to a diverse range
of funding sources and continues to review its debt maturity profile. 

As at 31 March 2021 easyJet has unrestricted access to c.£2.9 billion of liquidity,
comprising cash and cash equivalents, money market funds, money market deposits 
plus the undrawn portion of the UKEF facility.  The first £300 million tranche of
easyJet’s borrowings from the CCFF was repaid in March 2021 and the remaining £300
million is due in November 2021.  easyJet has no other debt maturities outstanding
until FY 2023. 

We retain ownership of 56% of the total fleet, with 41% unencumbered.  Sale and 
leaseback transactions on 23 aircraft were concluded during H2 2020, raising £608
million gross proceeds and adding c.£50 million to pro forma per annum headline 
costs.  During H1 2021 transactions were concluded on 35 aircraft, raising £842 
million gross proceeds and adding a further c.£90 million to pro forma per annum
headline costs. 

As previously indicated, easyJet will continue to review its liquidity position 
on a regular basis and will continue to assess further funding opportunities.

**Fuel & FX hedging**

Due to the sustained lower capacity expected for several months ahead, easyJet has
continued to see hedge ratios moving over 100% from both a jet fuel and FX perspective.
To mitigate the effects of this, easyJet has taken action to close out over-hedge
positions, to mitigate its exposure to volatility in the fair value of discontinued
hedges.  easyJet continues to hedge contractual exposures (such as leases and capex)
and has decreased the amount of operational hedging that is taken out for future
periods until there is greater clarity around exposures.

**Non-Headline Items**

Non-headline items for the six months ending 31 March 2021 are expected to reflect
a net c.£55 million credit.  This is comprised principally of gains related to sale
and leaseback transactions, with a net charge related to fuel hedge discontinuation
being largely offset by a release of restructuring provisions.  The release of restructuring
provisions is based on current expectations of our latest discussions with unions,
on which we will provide a further update at the half year results.  This will be
subject to review by our auditors. 

**Outlook**

Based on current travel restrictions in the markets in which we operate, easyJet
expects to fly up to 20% of 2019 capacity levels in Q3 with an expectation that 
capacity levels will start to increase from late May onwards.  We maintain significant
flexibility to ramp capacity up or down quickly depending upon the unwinding of 
travel restrictions and expected demand across our European network. 

The group headline loss before tax for the six months ending 31 March 2021 is expected
to be in the range of £690 to £730 million. 

The group reported loss before tax is expected to reflect the positive impact of
the non-headline items discussed above. 

easyJet will release half year results for the six months ending 31 March 2021 on
20 May 2021. 

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 closer to departure and visibility remains limited.

Notes:

1.  Liquidity raised during the pandemic of over £5.5 billion comprises c.£0.4 billion
from drawing down an existing Revolving Credit Facility, c.£0.4 billion from two
term loans, c.£0.6 billion from the UK Government’s Covid Corporate Financing Facility,
c.£1.4 billion in sale and leaseback transactions, c.£1.4 billion from UK Export
Finance facility, c.£1.0 billion from corporate bond issuance and c.£0.4 billion
in equity issuance. 

2.  Represents the number of earned seats flown. Earned seats include seats that
are flown whether or not the passenger turns up as easyJet is a no-refund airline,
and once a flight has departed a no-show customer is generally not entitled to change
flights or seek a refund. Earned seats also include seats provided for promotional
purposes and to staff for business travel.        

3.  Capacity based on actual number of seats flown.

4.  Represents the number of passengers as a proportion of the number of seats available
for passengers. No weighting of the load factor is carried out to recognise the 
effect of varying flight (or “sector”) lengths.  

5.  All comparisons of financial performance in this statement are year-on-year,
comparing Financial Year 2021 with Financial Year 2020.  Comparisons of capacity
however are made relative to Financial Year 2019 levels. 

6.  All numbers in this statement are provisional and are subject to review by our
auditors. 

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