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easyJet - full year loss despite record summer

Full year revenue rose from £1.5bn to £5.8bn as travel restrictions eased compared to last year, capacity rose...

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Full year revenue rose from £1.5bn to £5.8bn as travel restrictions eased compared to last year, capacity rose, and passengers returned.

Capacity increased from 28.2m seats to 81.5m, with load factor (a measure of how full the planes were) rising 13 percentage points to 85.5%. Passenger numbers rose from 20.4m to 69.7m.

There was an underlying loss before tax of £178m, versus a loss of £1.1bn last year. Included in that figure was a £64m headwind relating to a weaker sterling.

Performance was weighted toward the fourth quarter, where operational performance was better than the same period pre-pandemic.

Free cash flow of £246m was an improvement from an outflow of £1.2bn the prior year. That helped the group improve its net debt position from to £910m to £670m.

Management expects inflationary pressures to continue into 2023, with first half fuel prices up over 50%. Early bookings into next year look positive, with capacity exapted around pre-pandemic levels by the fourth quarter.

The board has decided to not pay a dividend.

The shares fell 1.5% following the announcement.

View the latest easyjet share price and how to deal

Our View

easyJet has just reported its third consecutive annual loss and there're 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 weaker sterling.

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.

Then there's cost headwinds, not least of which is the fuel cost which is forecast to keep rising into 2023. Some of the pain will be avoided with hedging, that's prices already locked in below current levels. But the rise will have a larger impact over the second half and beyond, as a lower percent of the costs are locked in. Crucially though, analysts aren't expecting higher costs to de-rail the return of pre-tax profits in the new financial year.

There are some further positives too.

Capacity levels are reasonably robust, and the planes that are taking off are largely full. That means costs-per-seat are decreasing. Heightened demand from people desperate to get away after years banned from the skies has rejuvenated performance, this was especially clear in the fourth quarter where ski travel was a large demand driver.

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 or slopes, rather than a business trip to New York.

Cost savings have been significant and following the rights issue, net debt is at a level we're comfortable with. We don't see the group needing extra funding from shareholders anytime soon. That said, dividends aren't a priority just yet. Some analysts are predicting a return in the current financial year, hence the 2.2% prospective yield - of course nothing is guaranteed.

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.

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: 29th November 2022