British low-cost airline easyJet has fallen to its first-ever loss, with a year-end loss of £1.27 billion. The airline is hedging its bets for future growth, exercising huge flexibility in its fleet plans to be ready for a range of demand scenarios. Despite the poor financial performance, the airline has raised more than £2.4 billion in additional liquidity, and is focused on only cash-positive flying.
easyJet’s first-ever loss was a large one
Low-cost easyJet has reported its first-ever annual loss in its 25-year history, as revenues plummeted due to the COVID pandemic. The total loss was for £1.27 billion, compared to a decade of profits that wavered around the half a billion marker.
Over the course of 2020, easyJet paid some £863 million in refunds to passengers, and issued approximately £250 million in vouchers to passengers. This was further compounded by the decrease in flying capacity of 47.5%. However, this lower capacity was prudently managed, resulting in a decrease in load factor of just 4.3% to 87.2%.
To mitigate the effects of COVID, easyJet has been working hard to raise cash and drive down costs, undertaking what the airline calls the biggest cost-out program in its history. Speaking on the earnings call today, CEO of easyJet, Johan Lundgren, said,
“We have been taking out costs at every level of the business. And not only will this create a step-change in our cost base, but crucially will give us a much more seasonal cost profile going forward.”
Part of this cost control has seen the airline losing around 30% of its workers over the course of the financial year. It has also leveraged Europe-wide furlough schemes to drive down costs and has targeted a 20% improvement in the efficiency of its staff.
A flexible future fleet
Part of easyJet’s strategy to ensure its ongoing liquidity position has been to exercise the flexibility of its future fleet plans. The airline has deferred 24 aircraft deliveries from Airbus to beyond 2025. The airline says that this means, for the first time in its history, there will be no new aircraft deliveries in the current financial year.
Thanks to favorable contract terms with Airbus, easyJet has managed to employ a huge level of flexibility in its future fleet plans. The plan allows the airline to expand or contract its future fleet, based on the demand seen in the market at the time. Overall, the variation is some 31%, with a contractual maximum fleet size of 356 aircraft by 2023, or of just 272.
Coming out of COVID, the airline will own a much smaller proportion of its fleet. Over the course of the 2020 financial year, the airline raised some £38 million through the sale and leaseback of 33 aircraft. CFO Andrew Findlay said that more sale and leaseback deals had been made, even after the end of year report was generated. Speaking on the earnings call, he said,
“Since the end of the financial year, sale and leaseback of a further 30 aircraft have been transacted, raising an additional £717 million. Following completion of these transactions, we retain ownership of 55% of our fleet, with 37% unencumbered.”
The airline says it is not considering any further sale and leaseback transactions at the current time.
Overall, the airline has done well to raise the amount of liquidity it has. As of September 30th, the airline is sitting on £2.3 billion in cash, more than double that of the average of the last three years. However, it’s also sitting on a pile of debt, totaling £1.1 billion, a 237% increase over its debt level last year.
As expected, a slot transfer request was submitted yesterday, indicating the airline has sold its Stansted slots to competitor Ryanair. No figure was given for this transaction but will likely be revealed at the next quarterly update.
