EasyJet makes first-ever loss despite smart moves during Covid-19

Budget airline has been buffeted by the pandemic, but shored-up finances leave it in a good position for recovery.

While the numbers make for predictably ugly reading, budget airline easyJet has been agile in reshaping its business where possible.

With its entire fleet grounded for 11 weeks during the initial wave of the pandemic, and with any number of country-specific travelling restrictions limiting recovery since, the effects on the numbers have been severe.

Overall revenues fell by 53%, passenger numbers by 50% and capacity by 47.5%. 

The effects of the pandemic have also exposed the thin margins on which the airline was operating. 

As flagged up a month ago, the company’s latest full-year results plunged into negative territory for the first time. Revenues per seat fell by almost 11% to £54.35, worsened by a 21.7% increase in the cost per seat to £69.03.

The headline loss of £835 million is within the previously guided range of between £815 and £845 million, while the reported pre-tax loss of £1.27 billion compares with a profit of £430 million in the previous year. 

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Cash burn reduced from the previous quarter’s £774 million, but at £651 million nonetheless remains a constant and significant drain on the company’s resources.

Inevitably easyJet feels unable to give guidance for the forthcoming year in light of the ongoing uncertainty. 

In the shorter term, it expects to be flying at just 20% of planned capacity for the first quarter of the new financial year, down from the 38% of the fourth quarter as the traditionally quieter winter months kick in, let alone any other restrictions.

As such, the company has shored up its financial position in a number of ways.

In total, it has raised £3.1 billion in liquidity, which comprises £2.4 billion in the reporting period. A subsequent sale and leaseback of 30 aircraft raised £717 million. 

At the same time, costs have been reduced by 31% and the company moved swiftly to capitalise on the few opportunities presented to it. In October, for example, the lifting of restrictions in travel to the Canary Islands resulted in a sales increase of 876% over five days as the company added 180,000 available seats within 24 hours.

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Most recently, the potential for a Covid-19 vaccine has certainly given a shot in the arm to the likes of airline stocks, with the easyJet share price having risen by 54% in November so far. 

The potential for pent-up demand following the return to some kind of normality is evident, coupled with possible boosts from some returning business travel and also a spike in package holidays, from which easyJet Holidays could benefit.

For the moment, though, the potential remains untapped and the reality painful.

Despite a recent spike the shares are down 45% in the year to date. It had a decline of 40% over the last 12 months, as compared to a dip of 4% for the wider FTSE 250. The company fell out of the FTSE 100 in June. 

The tourism and travel industry stands poised to move when the shackles of Covid-19 are removed. EasyJet’s careful balance sheet management and popularity as a cheap airline means that the market consensus of the shares as a cautious ‘buy’ is understandable.

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