Easyjet Share Blog – Final Results Year Ended 2019

Easyjet have now released their final results for the year ended 2019.

Revenues increased when compared to the prior year with a £321M growth in passenger revenue and a £166M increase in ancillary revenue.  Fuel costs were up £232M, airport and ground handling costs grew by £196M, and crew costs increased by £105M.  There was a £67M decline in the commercial IT platform change, a £40M reduction in Tegel integration costs, a £21M fall in sale and leaseback charges and £67M decrease in other costs which gave an EBITA £141M higher than last time.  Aircraft dry leasing costs were down £147M but depreciation was up £285M which meant that the operating profit was £3M higher.  Interest income was up £10M but there was a £26M recognition of interest payable on lease obligations so after tax charges declined by £6M the annual profit came in at £349M, a decline of £9M year on year.

When compared to the end point of last year, total assets increased by £1.17BN, driven by a £498M recognition of right of use assets, a £482M increase in aircraft and spares, a £260M growth in cash and a £48M equity investment, partially offset by a £57M reduction in money market deposits and a £122M fall in derivative financial assets.  Total liabilities also increased due to a £578M recognition of lease liabilities, a £347M increase in borrowings, a £192M growth in unearned revenue, a £179M increase in derivative financial instruments, a £74M increase in provisions and a £62M growth in the maintenance provision.  The end result is a net tangible asset level of £2.424BN, a decline of £263M year on year.

Before movements in working capital, cash profits declined by £24M to £1.018BN.  There was a cash inflow from working capital but this was less than last year and after interest payments increased by £28M and tax payments decreased by £16M the net cash from operations was £994M, a decline of £129M year on year.  The group spent nearly all this, £954M, on property, plant and equipment along with £30M on intangible assets and £174M on leases to give a cash outflow of £164M.  They also paid out £233M in dividends but took in £443M from a new Eurobond issue and £121M from sale and leaseback of aircraft.  This gave a cash flow of £210M and a cash level of £1.285BN at the year-end.

Total revenue per seat decreased by 1.8% to £60.81 reflecting economic uncertainty across markets, weakness in Q2 and subsequent recovery in the second half.  Passenger revenue actually grew by 6.9% due to a focus on optimising late yield, strength in the UK regions and France, a full year contribution from Tegel and a positive impact from strikes at BA and Ryanair.  This was offset by a tough comparison which benefited from the collapse of Monarch, cancellations at Ryanair and industrial action in France, economic uncertainty in some markets, weakness in Q2 due to the original Brexit date, drone sightings in Gatwick and a softer London market. 

Ancillary revenue grew 13.7% which reflected a focus on a data-driven programme of products and services such as seasonal pricing on allocated seating, introduction of the fourth band of seat pricing and loss of revenue from changes to admin fees more than offset by a strong performance of ancillary revenues generally.

Headline cost per seat increased by 1.5% to £56.74 and at constant currency was up 0.4% to £56.08.  Excluding fuel, the headline cost per seat at constant currency decreased by 0.8% to £43.11.  This was driven by investment in operational resilience which drove decreases in cancellations and delays despite the drone issue at Gatwick and summer thunderstorms; lower navigation costs due to a reduction in Eurocontrol rates; fleet up-guaging from A319s to A320s and A321s, although this was less than planned due to Airbus delivery delays and lower de-icing costs due to relatively benign weather.

This was partially offset by the annualisation of crew pay deals, price increases at airports, and the impact of the drones at Gatwick relating to customer welfare coasts.  Fuel cost per seat increased by 8.4% to £13.48 and by 4.3% at constant currency, driven by a higher hedged fuel price compared to last year partially offset by a continued investment into more fuel efficient aircraft. 

The group incurred a net benefit of £3M in non-headline items this year compared to a £133M cost last year.  There was a £2M gain as a result of the sale and leaseback of ten A319s compared to a charge of £19M last year, there was a £2M gain from the retranslation of balance sheet monetary assets, a £2M credit related to the commercial IT platform compared to a £65M charge, a £4M charge for ongoing Brexit mitigation costs compared to £7M last time, a £1M credit related to fair value adjustments and no Tegel charges, which were £40M last year.

The group continues to target growth in regional France and in April opened a new base in Nantes, which brings its number one position in the country to six, including Nice, Lyon, Bordeaux, Lille and Grenoble.  They also consolidated their position as the UK’s leading airline in the domestic market with growth at Manchester, Edinburgh, Glasgow, Belfast, Liverpool, Southend and Bristol as well as continuing to strengthen their number one position in Milan, Venice and Naples.

During the year they grew capacity by 10.3% which is nearly double the market as a whole.  The growth came from the UK, France, Spain and Italy as well as Germany due to last year’s Tegel acquisition.

The group are now offsetting the carbon emissions form the fuel used for all its flights on behalf of customers to make them the first major airline to have a net zero carbon emissions from all flights.  At this stage it is expected that this will cost £25M in 2020. 

The new Holidays business will be launching in the UK before Christmas.

The increase in business passengers in 2019 was 11% and has been driven by a B2B sales focus on promoting a new Flexi Fare proposition and inclusive products on their UK, French and German domestic routes, which saw a 13% increase in business passenger numbers.   Overall penetration of business rose by 0.5% to 17.5% but the business premium declined by 4% reflecting tougher market conditions.

The efficiency programme has been able to deliver sustainable reductions in the period.  £139M of savings has been achieved due to new airport deals, lower ground handling costs and disruption costs savings.  They expect to deliver at least £80M incremental savings in the coming year. 

The Air Traffic Control environment in Europe remains challenging, experiencing 24.5M delay minutes in the year.  During the year, however, the group made significant progress in its operational resilience programme using data and resource from across the company which has resulted in improvements in several key areas.

Improvements include schedule design, factoring in longer turn times for larger aircraft and buffers for congested airspace; increasing standby aircraft and crew; increasing automation in claims processing; and more data products to predict issues.  These have yielded tangible results with a 30% reduction in total events, a 46% reduction in cancellations and a 24% reduction in three hour delays. In mitigating the impact of ATC delays, the pre-flight tactical planning team avoided over 550 hours of forecast delay and the flight planning team is re-routing on the day to avoid a further 20,000 minutes of delay a week.  For the first time in four years the group has seen a reduction in disruption costs. 

During the year the group purchased land in Luton with the intention of building a new head office.

After the year-end the group acquired Thomas Cook’s slots at Gatwick airport (12 summer slots and 8 winter slots) and Bristol (6 summer slots and one winter slot) for £36M. 

Forward bookings for the first half of 2020 are reassuring and slightly ahead of last year.  Revenue per seat for the first half of the year is expected to be up low to mid single digits year on year.  Disruption costs are expected to continue improving next year.  A lower rate of capacity growth will make it more challenging to deliver lower costs per seat on an underlying basis, however.  Headline cost per seat excluding fuel at constant currency is expected to increase by low single digits and capex for 2020 is expected to be around £1.35BN.  Based on today’s fuel prices, unit fuel costs are expected to result in a headwind of between £70M and £140M.  The expected forex impact is expected to be a positive movement of around £40M. 

At the current share price the shares are trading on a PE ratio of 17.4 which falls to 15.5 on next year’s consensus forecast.  After a decrease in the dividend the shares are yielding 2.9% which increases to 3.2% on next year’s forecast.  At the year-end the group had a net debt position of £326M compared to a net cash position of £396M at the end of last year.  Although it should be pointed out that there is an extra £531M of debt due to the recognition of leases as debt.

On the 21st January the group released a trading update covering Q1.  They delivered a strong performance.  The delivery of self-help initiatives, robust customer demand and low levels of competitor activity drove outperformance in both the passenger and ancillary revenue per seat leading to an upgrade to their H1 revenue guidance.  The cost performance was in line with expectations and the group expects to deliver a first half headline loss better than last year.

Total group revenue for the quarter increased by 10% with passenger revenue up 9.7% and ancillary revenue up 10.8%.  Passenger numbers increased by 2.8% driven by a 1% increase in capacity and a 1.6 percentage point increase in load factor.  Total revenue per seat increased by 8.8% at constant currency.  This has been driven by a solid yield performance with a strong performance in Berlin reflecting changes made in the German market, robust demand, better bag and allocated seating sales, a new car rental offering, and a benefit from the Thomas Cook administration in September. 

Airline headline cost per seat excluding fuel increased by 4.3% reflecting lower capacity growth, inflationary increases in ground handling, airport costs and maintenance, ownership costs reflecting new aircraft deliveries, annualisation of crew pay deals and better crew retention, French national strikes, partially offset by a focus on cost initiatives and the up-gauging of the fleet. 

The group has improved their on time performance despite the air traffic environment remaining challenging.  At the end of November the group launched its holidays business which was well received.

For the full year the group expects to grow capacity by 3% and H1 to grow around 1.5%, slightly lower than the previous expectation due to French air traffic control strikes.  H1 revenue per seat is expected to increase by mid to high single digits, slightly higher than before.  Full year cost per seat is expected to be up low single digits with H1 up mid single digits which includes a one-off maintenance charge.  The full year fuel bill is expected to be between £110M and £170M adverse and the full year forex movements are expected to have a £70M positive impact on headline profit.  The holidays business is expected to be at least break-even for the year.  Overall the group expects to deliver a first half headline loss before tax better than last time. 

Overall then this has been a bit of a difficult year for the group.  Profits declined somewhat, net assets were down and the operating cash flow deteriorated with no free cash generated.  The market is difficult at the moment due to general economic uncertainty, Brexit and continuing French ATC strikes.  Costs do seem to be fairly well controlled, however, and 2020 looks like it has stated rather better.  The forward PE and yield indicate that this is already the price of the shares though at 15.5 and 3.2% respectively.

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