Last checked at 23 Jan 2018 07:00
EASYJET TRADING STATEMENT FOR THE QUARTER ENDED
31 DECEMBER 2017
easyJet has delivered a strong performance in Q1 2018.
Summary
· easyJet continues to deliver on its strategy, reporting a strong first quarter of trading and completing the acquisition of Air Berlin operations at Tegel airport
· Purposeful investment in capacity, strengthening positions across the network and delivering 8% growth in passengers for the quarter
· Positive revenue performance in the first quarter with total revenue increasing by over 14%
· Underlying cost performance is strong and continues to be in line with guidance for the full year
· Investment in resilience and a new ground handling contract at Gatwick has delivered a 2 percentage point increase in network On Time Performance to 81%, despite increased levels of disruption
· Strong balance sheet maintained with net cash as at 31 December 2017 of £357 million
· Successful start to operations at Berlin Tegel airport in January and transition plans on track
· Revenue per seat at constant currency is expected to increase by mid to high single digits in the first half
Commenting, Johan Lundgren, easyJet Chief Executive said:
"easyJet delivered a strong start to the financial year with a significant growth in revenue in part driven by an increase in passengers flown and strong growth in inflight and ancillary sales as we offer more and better quality options for our passengers. We continue to focus on cost, generating approximately £28 million in lean savings in the quarter, and we completed our acquisition of part of Air Berlin's operations at Berlin Tegel.
"My aim is to help easyJet to go from strength to strength. Our customer proposition will continue to drive both passenger growth and loyalty. We have great revenue growth, strong cost control, a robust operation and a strong balance sheet. We expect to reach a series of milestones in 2018 including the roll out of our full summer schedule at our newly established base at Berlin Tegel, an increase in passenger numbers from 80 million to around 90 million, 'Worldwide by easyJet' will be expanded to around half of easyJet's network allowing customers to connect to long-haul services, our fleet will increase to over 300 aircraft by spring 2018 and we will take delivery of our first A321neo aircraft. There's a lot to look forward to."
Revenue growth
Total revenue in the first quarter increased by 14.4% to £1,140 million reflecting an increase of 1.4 million passengers carried through the period, a 6.6% increase in revenue per seat at constant currency1, a strong increase in ancillary revenue as well as a benefit from foreign exchange.
The number of passengers carried increased by 8% to 18.8 million, driven by a growth in capacity of 5.5% to 20.4 million seats and load factor increasing by 2.1 percentage points to 92.1%.
easyJet has seen a positive trading environment based on the strength of its network and customer proposition, capacity reductions and lower growth in easyJet markets, in particular as a result of the bankruptcies of Monarch, Air Berlin and Alitalia as well as the impact from Ryanair's flight cancellations.
Ancillary revenue continues to perform well, increasing by 20% to £226.3 million (2017: £188.0 million). The momentum from last year's product and pricing initiatives, particularly for Bags and Allocated Seating, is continuing into this year and benefitting from both higher loads as well as further product offerings brought to market.
Cost
Headline2 cost per seat, including fuel, improved by 1.6%, due to low fuel prices and easyJet's ongoing focus on underlying cost control. Headline cost per seat excluding fuel at constant currency increased by 1%, in line with guidance, as underlying unit cost improvements were offset by underlying inflation and the impact of disruption, mainly due to severe weather and industrial action.
Cost in the first quarter was driven by:
o a 2.1 percentage point increase in year on year load factor
o Severe adverse weather driving increases in de-icing and disruption costs
o Additional disruption costs predominantly due to industrial action in October, particularly air traffic control in France
o Agreed inflationary increases in crew and pilot pay
easyJet's lean programme delivered savings of £28 million in the quarter to offset these cost increases. This was through robust management action on costs and the benefits of increasing scale:
o Ongoing unit cost benefits as we deliver growth at our main airports
o Up-gauging of fleet with the delivery of bigger, more efficient aircraft
o Navigation price benefits, primarily in France and Germany
Customer and operational performance
easyJet's On Time Performance (OTP) is continuing to improve with 81% of flights arriving within 15 minutes in Q1 2018, despite the impact of the industrial action and severe weather noted above.
The benefits of investment in resilience last summer and the start of ground handling operations by DHL at Gatwick in November have had a significant benefit to operational performance at the airport, which improved OTP by seven percentage points to 77%.
easyJet experienced 1,051 cancellations in Q1 2018 compared to 512 cancellations in Q1 2017, with the biggest number of cancellations due to adverse weather conditions in December
OTP % arrivals within 15 minutes | Oct | Nov | Dec | Q1 |
Q1 '18 | 81% | 88% | 74% | 81% |
Q1 '17 | 78% | 87% | 73% | 79% |
Berlin Tegel
easyJet completed the acquisition of part of Air Berlin's operations at Berlin Tegel airport on the 15 December and successfully started its flying programme on the 5 January, operating a reduced winter schedule with a fleet of mainly wet lease aircraft. The summer 2018 schedule is due to be released shortly, with more frequencies and destinations offered. easyJet currently expects the headline loss from the 2018 flying operation to be around £60 million, in line with previous guidance.
The transition process for the main part of the operations is also progressing well. Leases on Air Berlin aircraft have been secured and the registration and conversion process has begun. The first ex-Air Berlin crew has now completed training and there is a strong recruitment pipeline over the next few months. The expected non-headline financial cost is in line with previous guidance of circa £100m million.
Other non-headline items
As previously guided, easyJet incurred other non-headline costs during the quarter:
· easyJet entered into the second of a series of planned sale and leaseback arrangements for 10 A319 aircraft and generated £106 million in cash. Due to the age of the selected aircraft at the time of this transaction and related maintenance provision, easyJet incurred a one-off, non-cash charge of £19 million
· Costs associated with our Brexit-related plans were £1 million, principally due to the cost of registration of aircraft in Austria. As at 31 December 2017 29 aircraft were registered on easyJet Europe' s AOC out of a planned 110 aircraft
· easyJet is in the process of completing its organisational redesign, with £1 million of cost incurred during the quarter.
Balance sheet
easyJet has maintained a strong balance sheet position. Cash and money market deposits were £1,330 million (31 September 2017: £1,328m) and net cash as at 31 December 2017 was £357 million (31 September 2017: £357m).
KEY FIRST QUARTER FINANCIALS
Three months ended | 31 Dec 2017 | 31 Dec 2016 | Change Fav./(adv.) |
Passengers (million) | 18.8 | 17.4 | 8.0% |
Seats flown (million) 3 | 20.4 | 19.3 | 5.5% |
Load factor (%) 4 | 92.1 | 90.0 | 2.1ppts |
Total revenue (£ million) | 1,140 | 997 | 14.4% |
Passenger revenue (£ million) | 914 | 809 | 13.0% |
Ancillary revenue (£ million) | 226 | 188 | 20.4% |
Total revenue per seat reported (£) | 55.99 | 51.64 | 8.4% |
Total revenue per seat constant currency (£) | 55.03 | 51.64 | 6.6% |
Headline cost per seat reported (£) | (54.34) | (55.21) | 1.6% |
Headline cost per seat at constant currency (£) | (53.40) | (55.21) | 3.3% |
Headline cost per seat excluding fuel at constant currency (£) | (42.53) | (42.12) | (1.0)% |
ASKs (billion) | 22.3 | 20.7 | 7.4% |
RPKs (billion) | 20.7 | 18.8 | 9.7% |
Average sector length (km) | 1,094 | 1,074 | 1.9% |
LOOKING FORWARD
Hedging
easyJet operates under a clear set of treasury policies agreed by the Board. The aim of easyJet's hedging policy is to reduce short-term earnings volatility. Therefore, easyJet hedges forward, on a rolling basis, between 65% and 85% of the next 12 months anticipated fuel and currency requirements and between 45% and 65% of the following 12 months anticipated requirements. Details of current hedging arrangements are set out below:
Percentage of anticipated requirement hedged | Fuel requirement | US Dollar requirement | Euro surplus | Swiss Franc surplus | |
Six months to 31 March 2018 | 84% | 89% | 70% | 71% | |
Average rate | $513 / metric tonne | $1.36 | €1.24 | CHF1.34 | |
Full year ending 30 September 2018 | 79% | 79% | 75% | 74% | |
Average rate | $516 / metric tonne | $1.36 | €1.24 | CHF1.31 | |
Full year ending 30 September 2019 | 52% | 54% | 60% | 55% | |
Average rate | $538 / metric tonne | $1.31 | €1.13 | CHF1.23 | |
Hedging excludes expected fuel requirement for Tegel flying
Annual General Meeting
easyJet is asking shareholders at its 2018 Annual General Meeting to support changes to its Articles of Association which will enable the Board to ensure that the Company remains EU owned and controlled at all times after the UK has left the EU thus allowing it to continue to fly between and within EU countries post Brexit.
Outlook
easyJet's seat capacity excluding Tegel is planned to grow in the first half year by around 5% and by between 5% and 6% for the full year as it pursues it purposeful network investment strategy, subject to normal levels of disruption.
Approximately 60% of expected bookings for the second quarter (excluding Air Berlin operations) have now been secured, slightly ahead of the prior year. Revenue per seat for the second quarter is expected to increase by mid to high single digits. This reflects good underlying revenue performance, lower market capacity growth as well as the partial benefit of the timing of Easter, which will therefore have a negative impact on the third quarter.
Headline cost per seat excluding fuel at constant currency is expected to increase by circa 1% for the full year (subject to normal levels of disruption) in line with previous guidance, with first half headline cost per seat excluding fuel at constant currency also expected to increase by circa 1%. This equates to a full year decrease in headline cost per seat including fuel at constant currency of around 0.5%. easyJet continues to maintain a strong focus on cost control, driving continued improvement in operational performance and delivery of its customer proposition. easyJet is committed to its target of flat cost per seat excluding fuel at constant currency in 2019 vs. 2015 at normal levels of disruption.
It is estimated that at current exchange rates5 and with jet fuel remaining within a $620 metric tonne to $680 metric tonne trading range, easyJet's unit fuel bill for the first half of the financial year is likely to decrease by between £60 million and £65 million compared to the six months to 31 March 2017. On a full year basis it is estimated that at current exchange rates and with jet fuel within a $620 metric tonne to $680 metric tonne trading range, easyJet's unit fuel6 bill for the 12 months ending 30 September 2018 is likely to decrease by between £80 million and £100 million compared to the 12 months to 30 September 2017.
In addition, exchange rate movements are estimated to have around a £5 million positive impact compared to the 12 months to 30 September 2017 on headline earnings.
easyJet is well positioned to take advantage of the opportunities that are available in the current market. With its strong balance sheet and significant financial and operational flexibility, easyJet is confident in its ability to drive long-term shareholder returns from its strategy of purposeful investment in securing leading positions in its core markets.
For further details please contact easyJet plc:
Institutional investors and analysts:
Stuart Morgan +44 (0) 7989 665 484
Michael Barker +44 (0) 7985 890 939
Media:
Paul Moore +44 (0) 7860 794 444
Anna Knowles +44 (0) 7985 873 313
Conference call details
Standard International Access
+44 (0) 20 3003 2666
UK Toll Free
0808 109 0700
Participant password: easyJet Analyst
END
Notes:
1. Constant currency is calculated by comparing 2018 financial period performance translated at the 2017 financial period effective exchange rate to the 2017 financial period reported performance, excluding foreign exchange gains and losses on balance sheet revaluations
2. Detailed disclosure on the headline performance measure will be provided at half year results
3. Represents the number of earned seats flown. Earned seats include seats that are flown whether or not the passenger turns up because easyJet is a no-refund airline, and once a flight has departed a no-show customer is generally not entitled to change flights or seek a refund. Earned seats also include seats provided for promotional purposes and to staff for business travel.
4. Represents the number of passengers as a proportion of the number of seats available for passengers. No weighting of the load factor is carried out to recognise the effect of varying flight (or "sector") lengths.
5. US $ to £ sterling 1.341, euro to £ sterling 1.112
6. Unit fuel is calculated as the difference between latest estimates of financial year 2018 fuel costs less the financial year 2017 fuel cost per seat, multiplied by the financial year 2018 seat capacity. Based on fuel spot price range of $620- $680
7. Capacity figures from OAG
A copy of this Trading Statement is available at http://corporate.easyjet.com/investors