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easyJet - first half losses better than expected despite Omicron

easyJet's plans to reach near pre-pandemic capacity by the summer are unchanged...

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easyJet's plans to reach near pre-pandemic capacity by the summer are unchanged. The group also said first half losses of £535 - £565m have reduced compared to last year and were better than expected.

Johan Lundgren, CEO, said: "Since travel restrictions were removed, easyJet has seen a strong recovery in trading which has been sustained, resulting in a positive outlook for Easter and beyond, with daily booking volumes for summer currently tracking ahead of those at the same time in FY19."

The shares were down 1.5% following the announcement.

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Our View

easyJet's enjoying the spoils that come with the world getting back to normal. Easing restrictions means terminals are filling up once more, and the short-haul specialist is due to be back to pre-pandemic capacity by the summer.

It's certainly not been a smooth couple of years, and recovery isn't happening in a straight line.

Proceeds from the £1.2bn rights issue helped the group stomach disruptions, but it also gave easyJet the ability to increase its presence at major airports, investing in easyJet holidays and growing its ancillary product (things like extra baggage allowance, leg-room seats and food) portfolio.

This is a continuation of the existing strategy - focusing on profitable Western European routes within major airports. 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. And these efforts are paying dividends, with big boosts to ancillary revenue supporting the top line at the half year mark.

Operating in the middle of the market - between premium flag carriers and deep budget rivals can be a difficult place to be. However, so far easyJet seem to be navigating the industry's considerable headwinds rather well.

A focus on short-haul travel puts easyJet in a better position than its long-haul rivals when it comes to capturing returning passengers. UK beach and leisure routes look set to benefit from pent up travel demand in the aftermath of Omicron, and that shows. Passenger numbers are now over the 11m, compared to around 1m this time last year.

Cost savings have been significant too and following the right's issue, net debt is at a level we're comfortable with. While we suspect debt reduction is still pretty high up management's to do list - and as a result dividend payments are not a priority - it looks like the group should be able to hold its own going forwards. We don't see the group needing extra funding from shareholders anytime soon.

It's far too early to say that the hard times are over for easyJet, with the pandemic still lingering and inflation looking persistent. So far, easyJet has made the best of a very difficult situation - weathering perhaps the biggest crisis to have ever hit the airline industry. But we've seen first-hand how quick the tables can turn for airlines, so we're not getting too excited just yet.

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.

One of HL's non-executive directors is also a non-executive director at easyJet.

First Half Trading Statement

The group's strong trading partly reflects positive ancillary revenue, with revenue per seat sold rising 57% to £19.56.

In the second quarter, easyJet flew 67% of pre-pandemic capacity - in line with expectations. In the same period, planes were 78% full because of the effects of Omicron. In Q3, capacity is expected to reach 90% of 2019 levels.

Passenger numbers rose significantly in Q2 from 1.2m last year, to 11.5m.

The group highlighted 64% of its fuel for the second half is hedged, which means it is less exposed to the current elevated price.

easyJet also highlighted it has very little exposure to Eastern Europe, and expects little to no impact from the ongoing Ukraine crisis.

The group's sold and is leasing back ten aircrafts, generating gross cash proceeds of $120m. As at the end of March, there was net debt of £0.6m, down from £0.9m.

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
Matt Britzman
Equity Analyst

Matt is an Equity Analyst on the share research team, providing up-to-date research and analysis on individual companies and wider sectors.

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Article history
Published: 12th April 2022