EasyJet Expects to Ramp Up Capacity to 60% in Fourth Quarter; We Slightly Lower Our FVE to GBX 1,070

No-moat EasyJet is demonstrating good cost control as it reduced cash burn in the third fiscal quarter to GBP 55 million, compared with GBP 470 million in the second quarter, largely as a result of favorable working capital movements. Management expects to increase capacity to 60% of precoronavirus levels in the fiscal fourth quarter, up from less than 20% year to date, as they gear up for a recovery over the summer due to the gradual lifting of restrictions by the United Kingdom and European governments. Group headline loss before tax of GBP 318 million for the quarter brings the year-to-date total to GBP 1 billion, which will require the group to break-even in the fourth quarter if it is to meet full-year FactSet consensus estimates. We believe the rise in infection numbers from the delta variant in Europe remains the biggest source of short-term risk and uncertainty. Investors' fears are reflected in the recent retreat in airline share prices, with EasyJet now trading approximately 30% below its 52-week high. We slightly lower our fair value estimate to GBX 1,070, from GBX 1,090, as we incorporate the slower recovery into our short-term forecasts. The shares are trading in 4-star territory; however, we still prefer Wizz Air, which also has a 4-star rating but with better medium-term growth prospects.