easyJet’s miserable end to 2020

Today, easyJet became the first of the big three low-cost airlines in Europe to report results for the final quarter of 2020.

To nobody’s surprise, they were not pretty. The company continues with its weird policy of refusing to report a profit (or in this case loss) number on a quarterly basis. It does report revenue and cost figures, so I’m not sure what they think they are achieving. I guess they want to make it as hard as possible for lazy journalists (or bots) to generate scary headlines.

However, like other analysts, I am able to subtract costs from revenues and calculate a pre-tax loss for the quarter of £423m. That is indeed a scary number and sets a new record for quarterly losses at the company.

We all knew revenue results would be terrible, as the second wave and associated travel restrictions in Europe squashed demand and airlines cut back on capacity. But how did easyJet do compared to the other two big low-cost European carriers?

Revenue results

easyJet has consistently been more conservative than the other two in terms of capacity operated. That makes sense as it is more oriented towards business traffic and more exposed to the UK, both of which have been hit harder in the pandemic.

Whilst its more conservative approach to capacity gave benefits in load factor earlier in the year, in the December quarter the company underperformed those at Ryanair.

The combination of capacity and load factor figures mean that easyJet has consistently had the lowest passenger figures compared to 2019 of the three airlines.

easyJet’s revenue per passenger fell by 10% compared to last year in the quarter. That was a little better than the 19% decline reported in the September quarter, but the revenue per seat decline of 35% was slightly worse due to the lower load factors.

Costs and cash

With capacity operated at only 18% of 2019 levels, costs remained stubbornly high at 41%. Both Ryanair and Wizz have very variable costs, but easyJet seems to have a cost base that behaves a lot more like the high fixed-cost network carriers.

Record P&L losses also seem to have translated into a prodigious cash burn. At the end of September, the company had a cash balance of £2.4 billion. They didn’t disclose a cash number for December, but did give a figure for total liquidity of £2.5 billion as at 25 January. That includes the recently agreed £1.4 billion loan facility, which was supported by a partial guarantee from UK Export Finance. That implies to me that cash may have fallen to only £1.1 billion. The company still has 38% of its aircraft assets unencumbered, so it should be able to raise further financing if necessary. But the balance sheet is certainly coming under more strain as the crisis drags on.

Outlook for 2021

Things are not going to get better any time soon. With continued bad news on the pandemic in Europe and governments imposing some of the most stringent travel restrictions since the start of the crisis, easyJet said that they expect to operate only 10% of 2019 capacity in the March 2021 quarter.

With the near term outlook looking so bleak, the company was keen to hold out hope for better news later in the year. They reported survey evidence that almost 75% of their customers were planning a trip in 2021.

Let’s hope that governments will allow their customers to follow up on that intention.