EasyJet Targets Pre-Pandemic Capacity Next Summer

EasyJet has outlined its pathway to moving past Covid-19, targeting capacity of 30 million seats in the three months to end-September next year, which would make it the first quarter in which pre-pandemic levels of capacity were surpassed.

Capacity reached 38 million seats in the six months to end-March. That figure, though up a quarter from the previous period, was markedly below performance in 2019/20.

Publishing its full-year earnings for 2022, the UK low-cost carrier notes that holding down capacity has enabled it to remain firm on pricing, helped by the retrenchment of rivals across much of Europe.

EasyJet believes its strategy of establishing strong positions at primary airports, something that frequently puts it in competition with legacy airlines rather than low-costs, gives it greater freedom to hold on pricing than if it were a purely budget operator.

"We are winning as legacy airlines pull out," said chief executive Johan Lundgren during EasyJet's results webcast. "We have a significant cost advantage against all the main operators from these airports, whether that is legacy airlines or other low-cost airlines."

The carrier specifically targets growth at London Gatwick, Porto and Lisbon, as well as the Greek islands, where it hopes to become the largest operator.

EasyJet plans to double down on its presence in core markets such as these by upgauging its Airbus A319s, of it has 94, representing 29% of its fleet, to larger A321neos. Although the two aircraft have a roughly similar fuel burn, the latter carries nearly 50% more passengers, notes Lundgren.

Around 40% of EasyJet's A319s are slated for replacement over the coming three years.

Breaking down market segments, the company notes that beach travel is a "star performer", while domestic has fully recovered. Business travel is coming back, led by small and medium-sized companies, but city-break destinations are lagging.

Lundgren adds that outside the peak periods this winter, "there is a need to stimulate through pricing", indicating that pent-up demand, which has driven customer behaviour over the past year, may be beginning to wane amid a worsening economic picture.

Likewise, "action is needed to offset cost that is coming our way", as fuel hedges unwind, although the airline remains over 50% covered for its requirements through the six months to end-September 2023.

Overall, EasyJet delivered headline EBIT of £3 million ($3.6 million) for the 12 months to end-September, reversing losses of over a billion last year. Revenue of £5.78 billion was nearly four times that recorded in 2021.

HSBC highlights EasyJet's "strong finish" to 2022. "Most exciting, in our view, is the progress on ancillary revenues and network optimisation," writes the bank. "On ancillaries, September 2022 was the first clean month of operation with the in-house onboard offering delivering a 10% year-on-year increase in spend per seat. Network reshuffling also delivered a 10% increase in contribution per block hour versus the fourth quarter of 2019."

It maintains a ‘Hold’ rating on EasyJet stock and increases its target price to 440p from 380p.