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easyJet - half year at the top end of guidance

Half year pre-tax losses were £545m, compared to £701m last year. That was at the better end of expectations, and reflects...

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Half year pre-tax losses were £545m, compared to £701m last year. That was at the better end of expectations, and reflects an increase in revenue from £240m to £1.5bn. Capacity was 30.3m seats, up significantly on 6.4m last year.

easyJet expects to operate 90% of pre-pandemic capacity in the current quarter. In the last 10 weeks, bookings have been 6% above the same period in 2019.

The group said: "Despite the rise in living costs, consumer research suggests there is still strong appetite to travel due to pent up demand and people topping up savings during the pandemic. 1 in 2 respondents in the UK say limited opportunities to travel during the pandemic has made their holidays more important to them than before".

The shares were broadly flat following the announcement.

View the latest easyjet share price and how to deal

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.

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 30m, a huge increase on last year.

Cost savings have been significant too 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.

The group's also confident that the cost-of-living crisis isn't touching performance. It was quick to point out that holidays are more important to people these days, after two years without travel abroad. This idea does ring true to some extent, but there's no getting away from the fact that if faced with a recession, a holiday - whether a hop down the road or a city break to Prague, simply isn't going to happen for millions of people. This isn't a flashing red indicator at this juncture, but it's something to keep one eye on.

It's hard not to be impressed with progress, and we're feeling a lot more positive than we have in a while. But it's still a touch too early to say that the hard times are over for easyJet, with work still to be done on getting operations back into full health, and the risk of a steep economic downturn lingering.

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.

First Half Results

Passenger revenue rose to £985m, up from £170m. That comes as passenger numbers rose almost six-fold to 23.4m, and planes were 77.3% full on average, compared to 63.7%.

Ancillary revenue rose even faster, reaching £513m from £70m.

Underlying costs, excluding fuel, rose 94.2% to £1.7bn. That reflects the costs associated with ramping up capacity. easyJet is around 71% hedged for fuel in the second half, and 49% for the first half of the next financial year.

The easyJet Holidays business has seen a 500%+ increase in summer bookings, and 70% of planned 2022 capacity has been sold.

The group decided against offering official forward guidance, saying: "At this stage, given the continued level of short-term uncertainty, it would not be appropriate to provide any further financial guidance for the 2022 financial year. Customers are booking closer to departure and visibility remains limited."

The group generated £207m of free cash flow, compared to an outflow last year. Net debt fell £0.3m, to £0.6m.

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

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: 19th May 2022