easyJet Stock Market Press Statement
easyJet plc statement relating to US events
The thoughts of everybody at easyJet are with those affected by the tragic events in the United States a fortnight ago.
These are very early days and all airlines are still learning about the changed European environment. easyJet is cautious about the trading environment, but it believes that its business model is robust and able to operate within whatever security regime is in place in Europe. Furthermore, in the current environment, easyJet believes that low-cost airlines will be more resilient than many flag carriers, particularly if the low-cost carriers fly point-to-point within Europe.
easyJet makes the following observations.
Airline operations in Europe
easyJet believes that aviation within Europe is undergoing a two-phase change process.
First, there is short-term disruption as airports, airlines and passengers learn to live with the increased security measures. With the current security procedures, easyJet flew yesterday’s schedule (Sunday) with 83% of its flights arriving within 15 minutes of the scheduled time.
Second, there will be a new long-term security regime within Europe. As easyJet can not predict what this will be, it is unable to forecast what impact it will have on European airlines. However, easyJet believes that although there may be changes to the way in which passengers are processed through terminals, the re-engineering of check-in, security and embarkation processes should not affect aircraft utilisation. However, passenger check-in times may increase.
Immediate impact on easyJet's operations
For the period prior to the attacks, easyJet had been pleased with its performance: revenue has been firm, with year-on-year increases in both yield and load-factor; costs have been on track; and growth has occurred as planned.
Immediately following the attacks, easyJet rigorously applied the UK Government's increased security levels to all easyJet flights, both in the UK and elsewhere in Europe. Although not mandatory in countries outside the UK, easyJet implemented a "no comply, no fly" policy where, for example, 100% baggage screening could not be guaranteed. Due to a lack of preparedness at some airports, some flight cancellations occurred in early days.
The airline is now operating its full flying programme.
On the morning after the attacks, bookings fell by 26%, but quickly recovered and have grown steadily over recent days. Seat sales have recovered to normal levels and easyJet expects to report an average seat factor of over 80% for September.
The profit impact of the attacks notwithstanding, easyJet expects to report a full-year profit, for the year ended 30 September 2001, that is in line with market expectations.
Furthermore, as all aircraft deliveries during the financial year occurred as planned and have been financed by operating leases, cash holdings have increased.
easyJet expects there will be a softness in yield over the next few months. As with disruptions in earlier times, easyJet will use promotions to stimulate sales.
European propensity to travel
easyJet has softened yields and has held a seat sale over the last weekend. The market has responded well to both initiatives. In the seven days to 23rd September, easyJet sold 188,089 seats. This compares to an average of 146,467 seats per week over the 26 weeks to 10th September. This has confirmed easyJet’s belief that the leisure traveller in Europe will respond when the right price is offered.
Also, easyJet believes it is in a strong position to capitalise on the downsizing of other carriers’ networks. Its business model has been built on high frequency between major cities, creating credible alternatives for the business traveller. In addition, if the global economy slows, easyJet expects that business travellers will seek low cost alternatives and will migrate from the full-fare carriers.
Medium-term to long-term environment
Although easyJet is not in a position to anticipate future developments, there are some issues that easyJet can comment on.
easyJet's belief is that the revised security regime within Europe will have minimal impact on its high-utilisation network. The changes primarily affect passenger processing within terminals.
easyJet flies point-to-point within Europe. easyJet's belief is that this sector of the industry will be more robust than other parts of the aviation business.
If a recession occurs, easyJet believes that travellers will migrate from high-cost to low-cost alternatives.
As easyJet flies with frequent services on a number of business routes, the expected rationalisation of capacity by other carriers will leave easyJet well placed.
easyJet's risk profile is different from many carriers: easyJet does not fly North Atlantic routes.
There will be additional costs relating to security and insurance, but these will apply to ALL airlines. As a consequence, easyJet's view is that these are likely to be passed to the consumer. It should be noted, even at the new rates being proposed, insurance costs will still only be less than 3% of easyJet’s operating cost.
It should be noted that there has been lobbying by UK airlines for the UK Government to assist them.
In easyJet’s view this is inappropriate. Governments should not support inefficient airlines. Government aid should be confined to the necessary provision of war insurance and investment in assets (primarily in airports) that may be required to enhance security. easyJet believes that, if the industry is to be assisted by Government, a level playing field approach would be to abolish Airport Departure Tax.
easyJet flies to many major airports. This is an advantage, as they typically have the resources and equipment to undertake the new security measures. Also, they have a larger number of passengers across which costs can be spread.
Operating to major airports provides easyJet with an opportunity to gain market share as weaker carriers contract services.
Although easyJet has previously had a "no hedging" policy, due to the exceptional circumstances now affecting the industry, easyJet has now capped its Jet A1 fuel price at a strike price of approximately 95 US cents per gallon for 90% of its requirements over the next six months. The cost is minimal and it limits down-side exposure.
easyJet has three new aircraft deliveries from Boeing during the remainder of this calendar year and a further nine during calendar year 2002. Current planning is for these deliveries to proceed. Operating lease financing is in place for the next four aircraft deliveries.
easyJet currently plans to take delivery of all 26 of its B737-700s on firm order between now and May 2004. Discussions will begin in the New Year on delivery dates for an additional 30 aircraft on which easyJet has price protection.
easyJet has a strong balance sheet. At 31 March 2001, easyJet had £229m of cash. This cash holding equates to over seven months of operating costs. The cash position has strengthened since March, as the second half of the year has been profitable and all new aircraft deliveries have been financed via operating leases.
easyJet as a low-cost intra-European carrier
easyJet is genetically engineered to be low-cost and flexible. It believes that its business model is robust and will able to operate within the tightened security regime in Europe.
Although global demand will be affected, easyJet believes that low-cost airlines will be more resilient, particularly if they fly point-to-point within Europe. In comparison with most flag carriers, the low-cost point-to-point European airlines should prosper.
The industry will experience some short-term pain, but easyJet expects that the contraction of the industry is likely to provide a range of unique slot and airport opportunities. Also, growth opportunities will be aided by the availability of cheaper aircraft and a larger pool of pilots.
While some other airlines are announcing job losses and fleet capacity reductions, easyJet looks forward to hiring additional staff to deliver planned growth.