easyJet plc (LON:EZJ) has today updated the market on capacity, fleet and cost structure plans.
Fleet and capacity
As announced last week, easyJet will resume flying on 15 June, servicing a small number of routes where we believe there is sufficient customer demand to support profitable flying. The initial schedule will comprise mainly domestic flying in the UK and France.
Further routes will be announced as customer demand increases and government restrictions across Europe are relaxed. So far, the booking trends on the resumed flights have been encouraging, and the demand indications for summer 2020 are improving, albeit from a low base. Bookings for winter are well ahead of the equivalent point last year, which includes customers who are rebooking coronavirus-disrupted flights for later dates.
Regarding fiscal Q4 2020 capacity, current plans are that easyJet expects to fly around 30% of the planned capacity flown in Q4 2019. This will continue to be evaluated reflecting changing regulations and customer demand. Our commercial planning and data science teams continue to work through different demand scenarios as we move through summer and into winter 2020/21.
Looking further forward, easyJet expects its year end 2021 fleet size to be at the bottom end of our fleet range at around 302 aircraft, which is 51 aircraft lower than the anticipated fleet size for year end 2021 which was reported to the market prior to Covid-19. This fleet number will include c.3-4% of un-crewed standby aircraft during peak. The reduction in fleet size will be achieved through the measures previously announced, including the deferral of new aircraft deliveries and the re-delivery of leased aircraft.
In line with IATA projections, easyJet believes that the levels of market demand seen in 2019 are not likely to be reached again until 2023. Our fleet deal with Airbus gives easyJet the flexibility to react to the different circumstances and varying demand environments which we may be faced with in the coming period. However, as a low cost airline with a strong network, we believe we are well placed to benefit from customers seeking great value during that recovery period.
Rightsizing the airline and cost structure
To effect the restructure of our business, easyJet will shortly launch an employee consultation process on proposals to reduce staff numbers by up to 30%, reflecting the reduced fleet, the optimisation of our network and bases, improved productivity as well as the promotion of more efficient ways of working. We will launch the consultation process in the coming days.
easyJet is also continuing to take decisive action in other cost lines to remove cost and non-critical expenditure from the business at every level. Some of the areas of focus are:
· Airports & ground handling – our teams are in active consultation with airports and ground handlers regarding revised contracts to reduce costs
· Maintenance – swift action was taken to defer time-dependent maintenance spend due to reduced flying and our teams are continuing discussions with suppliers
· Selling and marketing – our commercial teams are renegotiating spend with agencies and prioritising on the most effective activities to optimise traffic and sales as we look to restart flying
Whilst we have also undertaken cost cutting measures within easyJet holidays, it maintains a high proportion of variable costs, which will flex with revenue, and has no inventory risk.
We also continue to focus on minimising non-essential capex spending. As previously outlined, our gross capex expectations are for c.£900m in 2020 (of which c.£350m remaining in H2), c.£600m in 2021 and c.£1,000m in 2022 (subject to auditor review). The majority of the anticipated capital expenditure in aggregate across H2 2020, FY2021 and FY2022 relates to aircraft lease payments treated as capital cashflows under IFRS16 as well as maintenance expenditure on existing aircraft and other IT related capital expenditure. Maintenance expenditure will be subject to restart phasing, the level of FY21 and FY22 flying and the quantity of operating lease redeliveries to lessors. A significant level of IT expenditure in FY21 and FY22 is discretionary and also subject to further review.
Funding
As announced recently easyJet has signed two term loans totalling c.£400m, with both loans maturing in 2022 and secured against aircraft assets. We also successfully issued £600m of Commercial Paper through the Covid Corporate Financing Facility (CCFF) as well as fully drawing down on a $500m Revolving Credit Facility, secured against aircraft assets.
Furthermore we continue to engage with an active lessor market interested in acquiring aircraft from easyJet’s fleet on a sale and leaseback basis. Announcements on the progress of these engagements will be made in due course, with anticipated proceeds now expected to be in the range of £500-£650m.
Upon closure of all these funding initiatives, we expect to have generated total additional liquidity of c.£2.0bn with our cash burn during grounding being broadly in line with our estimates published in April.
Biosecurity measures
Alongside the resumption of services, easyJet also announced a range of new measures to help ensure the health and wellbeing of both customers and crew onboard. These include:
· Customers, cabin and ground crew will be required to wear masks
· Enhanced cleaning and disinfection of easyJet aircraft
· Availability of disinfectant wipes and hand sanitiser onboard
· Initially, no onboard food service
The measures have been implemented in consultation with aviation authorities ICAO and EASA, and in line with government and medical advice.
Outlook
At this stage, given the level of continued uncertainty, it is not possible to provide financial guidance for the remainder of the FY20 financial year. However, as shown in this release, we continue to take every step necessary to reduce cost, conserve cash burn, enhance liquidity, protect the business and ensure it is best positioned on our return to flying.
easyJet will release half year results (for the six months to 31 March 2020) on 30 June 2020.
Johan Lundgren, easyJet CEO said:
“We realise that these are very difficult times and we are having to consider very difficult decisions which will impact our people, but we want to protect as many jobs as we can for the long-term.
“We remain focused on doing what is right for the company and its long-term health and success, following the swift action we have taken over the last three months to meet the challenges of the virus. Although we will restart flying on 15 June, we expect demand to build slowly, only returning to 2019 levels in about three years’ time.
“Against this backdrop, we are planning to reduce the size of our fleet and to optimise the network and our bases. As a result, we anticipate reducing staff numbers by up to 30% across the business and we will continue to remove cost and non-critical expenditure at every level. We will be launching an employee consultation over the coming days.
“We want to ensure that we emerge from the pandemic an even more competitive business than before, so that easyJet can thrive in the future.”
