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EasyJet sounds a note of optimism as it goes into a critical 2023

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EasyJet [LON:EZJ] the Luton-based, budget airline released its final results today (29th November).

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As previously reported easyJet has had a turbulent year with its share price dropping to a 345p 10-year low, following Coronavirus pandemic in 2020 and has been anaemic as the cost-of-living bites into its primary markets, showing clear evidence that investors are extremely downbeat about the budget airline’s near-term prospects.

On the bright side, easyJet’s share prices had not quite plumbed those debts (but was still in the 300s territory) opening today at 382.4p but had fallen nearly 5% in the first two hours of trading to 374.1p on release of the results.

The company offered a -32.8% year-to-date return, and a -25.2% one-year return, with easyJet having a market capitalisation of around GBP3bn. The airline’s shares have ranged between 276p and 729p over a 52-week period.

Not as bad as it could have been

Results were disappointing. But taking it in context, results weren’t as disappointing as they could have been. The company reported pre-tax losses of GBP208m, but this was 80% better than pre-tax losses of over GBP1bn in 2021.

When broken down, easyJet reported a non-headline loss of GBP30m against a GBP100m non-headline profit in 2021, which was a significant reverse under this metric. However, easyJet explained that non-headline items consist primarily of losses from the sale and leaseback of aircraft and the return of slots in the year at Berlin-Brandenburg airport following the “right-sizing” of its operations from 18 to 11 aircraft.

Similarly, EBITDAR was GBP569m against a negative EBITDAR of GBP551m, a 203% turnaround and revenue was GBP5.8bn against 2021 revenue of GBP1.5bn – again a big number turnaround of 296%. EasyJet also carries 43.9 million more passengers in 2022 against 2021, a 242% improvement.

Johan Lundgren, easyJet’s chief executive said in a statement this morning: “EasyJet has achieved a record bounce back this summer with a performance which underlines that our transformation is delivering. The summer saw easyJet achieve its highest ever earnings for a single quarter with headline EBITDAR of GBP674m, ancillaries up by 59% on FY19 and easyJet holidays well on its way to its GBP100m target.”

He continued: “EasyJet does well in tough times. Legacy carriers will struggle in this high-cost environment. Consumers will protect their holidays but look for value and across its primary airport network, easyJet will be the beneficiary as customers vote with their wallets.”

Industry weakness

The airline’s woes haven’t been completely down to easyJet’s performance or value offering. The whole sector has been affected. As previously reported Air France-KLM [EPA:AF.] has had a turbulent two years dealing with pandemic in its markets and more recently dealing with post-pandemic industrial action and pain has been felt across the industry in all markets leading to the possibility of sector consolidation as the better (often state-backed airlines) look at weaker private-sector competitors, to hoover up routes, airline slots and take out the competition (which would be bad for consumers, as with a few mega-airlines dominating the airspace, prices will inevitably be raised as a cartel collaborates to fix costs).

That said, easyJet goes into the 2023 financial year with one of the strongest balance sheets in European aviation and it does offer value compared to more traditional airlines, but will that value be enough?

Stay or go?

The sector is now also facing rising costs, as a result of the War in Ukraine and its effect on fuel prices, general global inflation on the rise, and a cost-of-living crisis in the UK (and elsewhere) meaning families just can afford to spend money on holidays in the way they used to and still pay for the basics. A rise in staycations is likely (which is good news for vacation lettings companies like Air BnB [NASDAQ:ABNB])

EasyJet is also not immune to its own industrial action, with French easyJet unions opposing the collective employee agreement which governs its cabin crew. The SNPNC-FO union issued a warning earlier this month over: “…a very significant risk that cabin crew activity will be suspended over the end of year holidays, in line with negotiations over salaries.” EasyJet has already had its business disrupted this year through strikes in Spain and Italy.

Although, Lundgren claims that the company is on target to increase its holiday sales and will have a profitable 2023, it remains to be seen, and the market needs convincing – especially as the traditional loss-making winter season approaches, markets are focussed not on this set of numbers, but the next set and easyJet will be hoping that the upcoming recession is short and shallow, as opposed to long and deep, which has been warned.

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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