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easyJet - capacity to be around 80% of pre-pandemic levels

Full year losses are due to come in between £190m and £170m.

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Full year losses are due to come in between £190m and £170m. The reported losses include the effect of exchange rates and disruption costs from the third quarter. easyJet said "the impact of Omicron, war in Ukraine and the industry wide issues experienced this summer all affected operational performance during the financial year".

The group expects capacity to be around 83% of pre-pandemic levels in the first quarter of the new financial year. Capacity during peak travel periods, including October half term and Christmas, is said to be back to pre-pandemic levels.

easyJet doesn't intend to pay a final dividend.

The shares were broadly flat following the announcement.

View the latest easyjet share price and how to deal

Our View

easyJet is staring down the barrel of its third consecutive annual loss.

There are a few reasons for this. A big one is the cost associated with cancellations and airport disruption earlier in the year, as well as the negative effect of a strong dollar.

Seeing profits and dividends pushed further into the future is frustrating, and there are some other things to keep in mind too. The cost-of-living crisis is deepening, and the risk of a recession within the next year is very real. That means non-essential, leisure travel demand isn't likely to recover with as much gusto as hoped for following the pandemic. We have concerns that the ultra-budget names could win out in an all-out price war, as well as denting easyJet's margins in the process.

There are some positives though.

Capacity levels are reasonably robust, and the planes that are taking off are largely full. That means costs-per-seat are descending. Heightened demand from people desperate to get away after years banned from the skies have rejuvenated performance.

And away from how many flights are in the air and how full they are, easyJet has proved it's incredibly successful at squeezing more revenue from existing custom.

So-called ancillary revenues (the extra add-ons like luggage, food or legroom) have had a jet-fuelled rise. On balance, we think this is a strong growth lever when looking at the long-term, but these could suffer in the face of a sharp economic downturn.

We're supportive of the group's route strategy. It focuses on profitable Western European routes within major airports. It's also invested heavily in bolstering its presence at these major airports and improving its routes. It's an approach that sets easyJet apart from other low-cost carriers - who trim costs by flying in and out of smaller, less convenient airports. A focus on short-haul travel puts easyJet in a better position than its long-haul rivals too, when it comes to capturing returning passengers who are looking for a quick jaunt to the sun rather than a business trip to New York.

Cost savings have been significant and following the right's issue, net debt is at a level we're comfortable with. That said, dividend payments aren't a priority just yet. We don't see the group needing extra funding from shareholders anytime soon though.

All airlines in the current environment come with an element of increased risk. That risk is reflected in easyJet's current valuation. We think the group is well-placed within its sector, and comes with growth opportunities, but only for those prepared to take a long-term view and stomach some turbulence along the way.

easyJet key facts

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

An independent Non-Executive director of Hargreaves Lansdown plc is also an Independent Non-Executive Director of easyJet plc.

Trading Update

In the fourth quarter, easyJet flew 88% of 2019 capacity, and planes were 92% full (this is known as the Load Factor). Capacity improvements reflect increased demand following the easing of restrictions. Passenger numbers rose around 81% to 24.3m.

There has been a "step change" in ancillary revenue - which is non-ticket revenue from things like food and extra legroom seats. Revenue-per-seat has risen 52% beyond 2019 levels. easyJet holidays also contributed to profits in what has been its first full year of operations.

Around 69% of easyJet's fuel costs are hedged for the first half of the new year.

As at the end of September, the group had net debt of around £0.7bn.

Find out more about easyJet shares including how to invest

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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Written by
Sophie Lund-Yates
Sophie Lund-Yates
Lead Equity Analyst

Sophie is a lead on our Equity Research team, providing research and regular articles on a selection of individual companies and wider sectors. Sophie's specialities are Retail, Fast Moving Consumer Goods (FMCG), Aerospace & Defence as well as a few of the big tech names including Facebook and Apple.

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Article history
Published: 13th October 2022