Specialist
Senior executive at Flybe Group plc
Agenda
- EasyJet's (LON: EZJ) liquidity going into lockdown and measures taken to fund the business – peer comparison
- Cash burn vs peers and measures taken to improve cost structure
- Load factor breakevens and outlook on traffic recovery
- Fleet planning strategy – recent sale and leaseback agreements, plus delivery delays
Questions
1.
Could you discuss how air traffic has evolved over the months since your last Interview [see European Airlines – Coronavirus Impacts & Most At-Risk Players – 30 March 2020]? The airline sector has been particularly impacted by the pandemic, but some flights are beginning to return – I believe EasyJet had around two weeks’ worth of flights at the end of the last quarter. What traffic recovery have you noticed?
2.
You suggested that Wizz Air is treating the operating environment as a growth opportunity – its strategy seems extremely aggressive compared to EasyJet’s. Wizz Air’s management still claims to be running profitable flights, and the company is pursuing westward expansion into new airports. How would you position EasyJet on the opportunistic vs defensive spectrum? Do you think the company is trying to capitalise on any opportunities? Would you say the focus is still on liquidity, cash burn and (audio distorts 10.40)?
3.
Why do you think EasyJet has pursued a sale and leaseback strategy in previous years, and seemingly more so than other airlines? You said it’s part of a de-risking strategy.
4.
What do you think would be the downsides of pursuing sale and leaseback across the whole EasyJet fleet? I believe 50% of the aircraft are still unencumbered.
5.
Could you give an overview of the dispute between EasyJet’s management and ownership around the company’s fleet decisions?
6.
Where do you stand in the debate between the management and ownership? There were profitability increases alongside growth between 2010 and 2016-18, but there is now structural overcapacity in the market, which could need pruning back.
7.
EasyJet reduced its cash burn estimate in the Q3 trading update to around GBP 750m-770m from GBP 1bn. This implies a significant degree of cost-flexibility, or cost takes-outs the company hadn’t expected. Could you discuss how Easyjet’s cash burn position has evolved and the company’s broader cost-flexibility, bearing in mind that a significant chunk of the costs will be directly related to flights?
8.
You mentioned that airport and handling charges are huge for EasyJet – I believe they make up around 25- 30% of the company’s revenues. I understand there’s a consensus that airports have had a favourable operating environment over the last few years, given the return on asset calculations they’ve had and the higher-than-expected traffic growth. Do you think players such as EasyJet expect the airports to pay for some of the recovery via reduced fees?
9.
What do you make of the news that EasyJet is cutting out London Stansted, London Southend and Newcastle International Airports?
10.
What are your expected break-even load factors for EasyJet? If there’s an average revenue per revenue passenger kilometre of around GBP 0.58, and the cash cost – which I define as operating costs minus depreciation – is around GBP 0.47, that implies an 80-81% break-even load factor. Do you think that’s correct? How would that differ from other airlines’ break-even load factors?
11.
How elastic do you think demand is to pricing in this market? Could the pent-up demand come and go, after which yields will have to decrease due to increased price-elasticity?
12.
It seems as if yield reductions could be required to stimulate demand, and that load factors will have to increase to break even. We could have a situation where a fleet is operating at 30-40% capacity on lower yields, and load factors are below the break-even level, meaning negative-profit flights. Would you say this is unsustainable?
13.
I believe EasyJet was running an 83% load factor in Q3, which is basically the break-even load factor. Do you think load factors will stay around this point for the next few years? I understand load factors were at 92- 93% before the crisis. Do you predict load factors recovering in 2024, given you predicted that’s when traffic would recover? Could load factors return first?
14.
Why do you think EasyJet is lagging at around 20% of its revenues coming from ancillaries vs Wizz Air on 45%? Could that be a function of EasyJet having higher fares, meaning Wizz Air’s total revenue per passenger isn’t much higher?
15.
How do you think business traffic will recover vs leisure traffic? I read that EasyJet has an around GBP 11- 12 revenue premium per business passenger vs per leisure passenger.
