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“Resilient” quarter for easyJet in three months to Jun-2009

29-Jul-2009
easyJet CEO, Andrew Harrison
easyJet CEO, Andrew Harrison

easyJet described the three months to Jun-2009 as a “resilient” quarter for the LCC, in which its position has “continued to strengthen”. CEO, Andy Harrison, stated the carrier is “continuing to perform relatively well in tough trading conditions” and expects to be “one of the few airlines to make a profit this year. He added that “easyJet’s fundamental competitive strengths continue to prevail; particularly the strength of our network and focus on cost reduction.”

Expects GBP25-50 million full year profit

While economic conditions remain uncertain and Aug-2009 remains an important and telling month the carrier, easyJet expects to deliver an underlying pre-tax profit in the range of GBP25-50 million in the full year to 30-Sep-09. The carrier added that constant currency total revenue and costs ex fuel continue to perform in line with previous guidance and over 75% of available Summer seats are now booked.

Strong revenues, particularly on a unit basis

Upon the initial release of limited financial highlights for the quarter, easyJet reported a 12.4% increase in total revenue, as passenger revenue increased 7.9% to GBP581 million and ancillary revenue (including checked bag charge) gained 35.9% to GBP140 million, to represent 19.4% of total revenue. At the end of the quarter, easyjet maintained its strong balance sheet at GBP962 million.

easyJet financial highlights for three months ended 30-Jun-09

Currency: GBP

 

% Change

Revenue (mill)

721

+12.4%

Traffic pax (mill)

11.9

+2.8%

Traffic RPKs (bill)

13.4%

+2.8%

Capacity ASKs (bill)

15.6

+2.0%

Load factor (%)

84.7%

+1.2 ppts

The results were even more impressive on a unit basis, with total revenue per passenger up 9.3% and total revenue per seat up 10.9%, boosted by a massive 34.1% increase in ancillary revenue per seat to GBP10.00. This was driven by an GBP1.59 per seat year-on-year increase in the checked bag charge and better performance in other ancillary products, including speedy boarding, car hire and in-flight which benefited from food offerings tailored by market and the introduction of Electronic Point of Sale equipment on board.

easyJet unit revenue figures: Three months ended 30-Jun-09

Currency: GBP

 

% Change

Total revenue per seat

51.42

+10.9%

Passenger revenue per seat

41.42

+6.4%

Ancillary revenue per seat (inc checked baggage charge)

10.00

+34.1%

Total revenue per passenger

60.72

+9.3%

Affecting this positive revenue performance was also the movement of Easter into the quarter, an overall reduction in supply to the European short haul market of 4% over the Summer and the strength of the Euro and Swiss Franc and a 12% increase in non-UK originating passengers.

On the cost side, operating costs for the quarter were, according to easyJet, “in line with expectations”. On a reported basis operating costs per seat excluding was up 11.3%, although at constant currency, operating cost per seat ex fuel was up 1.8%.

Making market share gains across Europe

In the quarter, easyJet continued its strategy of targeting growth in markets from which its weaker competitors are reducing capacity or eliminating services altogether, with the ultimate aim of building a “strong, defendable market position” in the current recessionary environment to position the carrier well once the European economy improves.

Based on this strategy, easyJet made market share gains across Europe during the quarter, as the carrier strengthened its position with market share gains particularly at London Gatwick, Milan, Paris and Madrid (these markets are, notably, key business markets in Europe).

The carrier experienced a 2.9% increase in passenger numbers during the quarter to 11.9 million, with 12% growth in passenger originating in Mainland Europe. Non-UK originating passengers now represent over half of easyJet total passenger numbers.

Overall, easyJet’s capacity in seats flown increased by 1.2% in the quarter with growth at Gatwick (+8%), Milan (+86%), Paris (+9%) and Madrid (+10%), which the carrier stated was partially offset by capacity reductions in weaker yielding markets.

easyJet key market highlights: Three months to 30-Jun-09

Market

Performance

Madrid

Achieved improved pricing and load factors following the retreat of weaker competitors

Belfast

Achieved improved pricing and load factors following the retreat of weaker competitors

Milan Malpensa

Despite recent competitive entry, easyJet continued to achieve load factors above the company average and nearly twice that achieved by new entrants, albeit yield did soften in the period

France

Good performance as easyJet continued to optimise the schedule in the markets

London Gatwick

Good performance as easyJet continued to optimise the schedule in the markets

Also during the quarter, load factor increased by 1.2 pptsr to 84.7%, due to the movement of Easter to the quarter, with load factor for the second half as a whole expected to be in line with 2008 levels.

The carrier stated it was “too early to assess any potential impact to the easyJet business from the outbreak of swine flu”.

Capacity growth of around 7.5% expected p/a

It is anticipated that easyJet’s average annual growth rate over the medium term (seats flown) will be around 7.5% p/a, although the carrier has flexibility to make adjustments based on changes in the economic and market conditions. The carrier has also made some slight changes to its fleet plan as follows:

easyJet fleet plan

 

Previous  (Mar-2009)

Current (Jun-2009)

30-Sep-08

165

165

30-Jun-09

-

177

30-Sep-09

172

181

30-Sep-10

187

187

30-Sep-11

194

196

30-Sep-12

-

207

Mitigation of risk through hedging strategies

Looking forward, easyJet has 75% of its fuel requirements hedged for the six months to Sep-2009 with 51% of requirements hedged in FY2010.

easyJet hedging positions: as at 30-Jun-09

 

Six months to 30-Sep-09

12 months to 30-Sep-10

Fuel requirement

75% at USD1,031/tonne

51% at USD771

USD requirement

76% with 74% forwards at USD1.82 and 2% with collars between USD1.83 and USD1.92

45% at USD1.74

Euro surplus

71% at EUR1.24/GBP

38% at EUR1.24/GBP

Continues to performance in line with previous guidance

Despite the current changes, easyJet continues to perform in line with previous expectations, with the carrier expecting the following:

  • Capacity (seats): Expects to increase by approximately 4% year-on-year in the current quarter, for a 3% increase in the second half of the year. Over 75% of easyJet’s available summer seats are now booked, with the carrier expecting total revenue per seat at constant currency to be “at least at the same level as the prior year;
  • Total operating costs (per seat ex fuel): Remain in line with expectations and are expected to grow by “mid single digits” at constant currency compared to previous year levels. Second half fuel costs are expected to be “broadly in line” with previous year levels; 
  • Net interest income: There will be a GBP30 million reduction in net interest income compared to the previous corresponding period in the full year.

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