Company Reports

EasyJet is a European low-cost carrier operating primarily on high-demand routes between primary, slot-constrained airports, where demand is robust and competitors face barriers to entry due to limited slot availability.

We are dropping coverage of EasyJet. We provide broad coverage of more than 1,500 companies globally and periodically adjust our coverage according to investor interest and staffing.

EasyJet returned to profitability for the first time since the start of the coronavirus pandemic as the group expects to generate headline profit before tax of GBP 480 million in the fiscal fourth quarter, which is just short of the GBP 528 million generated in the same quarter before the pandemic. A headline loss between GBP 170 million and GBP 190 million is expected for the full year, reflecting the challenges faced earlier in the year such as travel restrictions, the war in Ukraine, and staff shortages across the industry. We maintain our GBX 915 fair value estimate. Shares have dropped sharply, in line with peers, as investors avoid industries sensitive to inflationary pressures and economic headwinds.

Staff shortages across the aviation industry and the resulting disruptions resulted in GBP 133 million of related costs, driving EasyJet into a headline loss of GBP 114 million for third-quarter fiscal 2022. The airline, which has high exposure to the most disrupted airports, only managed to fly 95% of its planned schedule in the quarter. It has put measures in place to ease the disruptions such as additional crew, wet leases of aircraft, and seat blocking to lower onboard crew count. While disruptions have been eased on a run-rate basis, we believe the absolute costs in fourth quarter could be higher than in third quarter due to the magnitude of passenger numbers over the summer holidays. For perspective, we believe total costs related to the disruption could exceed 10% of EasyJet’s current market value.

EasyJet is downgrading its capacity and cost outlook in response to the aviation industry’s staff shortages as it struggles to rebuild capacity in the face of a sharp rebound in demand. The update is unsurprising, given widely reported flight cancellations and disruptions in Europe. The group now expects to fly 87% of capacity in the fiscal third quarter compared with previous guidance of 90%. During the fourth quarter, which includes the busy summer travel period, capacity is expected to reach 90% versus the 97% guided previously. Additionally, the cost impact from building in extra resilience will drive unit costs higher, generating profit headwinds. We will make changes to our forecasts, but do not expect a meaningful change to our GBX 915 fair value estimate. The stock is trading in 5-star territory and seems very attractive despite the highly uncertain outlook.

EasyJet reported first-half 2022 results with an optimistic tone, confirming the positive outlook for summer 2022 communicated in the recent trading update. The airline expects summer capacity to reach 97% of 2019 levels at load factors exceeding 90% in the fourth quarter, which compares with 95% precoronavirus. Yields are looking healthy, coming in 9% higher in first-half 2022 than in first-half 2019 and are 15% higher than prepandemic levels for forward bookings in the fourth quarter. This is a deviation from Ryanair, which warned of lower yields earlier in the week. With unit costs expected to reach 2019 levels in the second half, we expect strong profits in the second half of fiscal 2022. No guidance has been provided for fiscal 2022, but management expects to reach prepandemic EBITAR margins in the midteens over the medium term. We believe EasyJet is well positioned to benefit from the continued recovery over the summer and beyond, and we see shares as attractively valued compared with our GBX 915 fair value estimate.

EasyJet is the second-largest low-cost European airline behind Ryanair. The airline focuses on serving the leisure traveler and cost-conscious business traveler. In 2019, it served 96 million passengers, with annualized growth of 8% from 65 million passengers in 2014. It operates a network route structure and holds number-one or number-two positions at multiple high-traffic primary airports. We believe the cost-restructuring program underway could rationalize its cost base and drive EBIT growth of 9% per year over our five-year forecast period, from 2019 precoronavirus levels.

No-moat EasyJet expects a first-half 2022 loss before tax of approximately GBP 550 million, lower than the GBP 700 million reported a year ago, and exceeding expectations despite rising fuel costs and the removal of furlough support. Seat capacity for the second quarter was in line with previous guidance of 67% of 2019 levels and reached 80% of precoronavirus levels in March. Load factors have improved to 78% in the second half, from 60% in second-quarter 2021. The improved traffic figures are a result of relaxed restrictions in the U.K. and pent-up demand from passengers. The group continues to expect strong demand over the summer with capacity reaching prepandemic levels in the fourth quarter. EasyJet has lower exposure to Eastern Europe than peers Ryanair and Wizz Air and is well placed to benefit from a continued recovery in air traffic. Shares are trading at a steep discount to our GBX 915 fair value estimate.

EasyJet is the second-largest low-cost European airline behind Ryanair. The airline focuses on serving the leisure traveler and cost-conscious business traveler. In 2019, it served 96 million passengers, with annualized growth of 8% from 65 million passengers in 2014. It operates a network route structure and holds number-one or number-two positions at multiple high-traffic primary airports. We believe the cost restructuring program underway could rationalize its cost base and drive EBIT growth of 9% per year over our five-year forecast period, from 2019 precoronavirus levels.

Germany’s boost in defense spending, announced Feb. 27, will benefit most European defense contractors and could lead to multiyear increases in the growth outlook for these companies. While it is early days and very difficult to quantify the exact impact, we expect to make positive adjustments to our defense coverage. Of the pure-play defense names, narrow-moat Thales, Dassault, and Leonardo trade at discounts to our fair value estimates while wide-moat BAE Systems trades at a premium. We don’t believe our revisions will change this ranking by much, and our preference is for Thales and Dassault. Despite the impact from a demand and cost perspective on the airline and commercial aerospace companies we cover, we don’t foresee any structural long-term changes to their prospects and as such don’t anticipate any major changes to our fair value estimates. We maintain our preference for wide-moat Safran and no-moat Wizz Air under our aerospace and airline coverage, respectively.

EasyJet is the second-largest low-cost European airline behind Ryanair. The airline focuses on serving the leisure traveler and cost-conscious business traveler. In 2019, it served 96 million passengers, with annualized growth of 8% from 65 million passengers in 2014. It operates a network route structure and holds number-one or number-two positions at multiple high-traffic primary airports. We believe the cost-restructuring program underway could rationalize its cost base and drive EBIT growth of 9% per year over our five-year forecast period, from 2019 precoronavirus levels.

No-moat EasyJet halved first-quarter 2022 losses and significantly reduced cash burn as the group prepares for a strong summer ahead. The airline flew 64% of 2019 capacity in the first quarter, in line with previous guidance, while load factors came in slightly below the guided 80% level, largely due to renewed restrictions over December as a result of the omicron variant. Management expects near-term bookings to remain affected by omicron, but is encouraged by the sharp uptick in bookings since the U.K. government and other European countries’ announcement of travel restriction relaxations. Currently 67% of precoronavirus capacity is for sale in the second quarter, while management is guiding for a recovery to 2019 capacity levels in the fourth quarter, which includes the European summer travel period. The group’s more cautious approach relative to low-cost peers Ryanair and Wizz Air seems to be bearing fruit as the airline focuses on cost rationalization and consolidation at its key hubs. We maintain our GBX 830 fair value, with shares trading in discount territory.

No-moat EasyJet remains upbeat about its recovery prospects as the group increased its fleet plans by 25 aircraft from previous expectations and is consolidating its position at Gatwick Airport, which is expected to operate a fleet of 79 aircraft compared with 63 precoronavirus. The group also draws attention to its improved capital structure, which saw net debt decrease to GBP 910 million, from GBP 2 billion at the half-year results, and a liquidity position of GBP 4.4 billion largely thanks to the recent GBP 1.2 billion rights issue. During fourth-quarter financial 2021 the group operated 58% of 2019 capacity levels and expects to operate 65% of 2019 capacity levels in first-quarter 2022 as it ramps up to a full recovery in capacity levels by summer 2022. We believe the new omicron variant poses risks to the short-term targets and outlook as the possibility of renewed restrictions in the U.K. and Europe could impact travel demand over coming months. Shares have retreated significantly on the back of the latest COVID-19 developments and are trading well below our GBX 830 fair value estimate. We continue to prefer Wizz Air, which enjoys a better long-term growth trajectory.

EasyJet is the second-largest low-cost European airline behind Ryanair. The airline focuses on serving the leisure traveler and cost-conscious business traveler. In 2019, it served 96 million passengers, with annualized growth of 8% from 65 million passengers in 2014. It operates a network route structure and holds number-one or number-two positions at multiple high-traffic primary airports. We believe the cost-restructuring program underway could rationalize its cost base and drive EBIT growth of 10% per year over our five-year forecast period, from precoronavirus levels.

No-moat EasyJet released an upbeat trading statement for the financial year ended September 2021. The group is expected to report its lowest quarterly loss since the start of the crisis in fourth-quarter 2021 as it increased flying capacity to 58% of precoronavirus levels, up from 17% in the previous quarter. Flying activity was dominated by intra-European travel, while lingering travel restrictions in the U.K. continued to hamper travel between the U.K. and Europe. EasyJet’s high share of travelers from the U.K. means it is posting a slower recovery than low-cost carriers Ryanair and Wizz Air. Encouragingly though, the group expects to fly 70% of prepandemic capacity in first-quarter 2022 as U.K. travel restrictions start to ease. The group’s net debt position improved significantly to GBP 900 million, from GBP 2 billion a quarter ago, thanks to the recent GBP 1.20 billion rights issue. We lower our fair value estimate to GBX 830 to reflect the impact of the rights issue and lower our uncertainty rating to high, from very high, with the improvement in the group’s capital structure. The share is starting to look increasingly attractive on a risk/reward basis, but we still prefer Wizz Air, which has a more attractive growth outlook.

No-moat EasyJet rejected a takeover offer and announced a GBP 1.20 billion rights issue. Media reports by Bloomberg suggested the “unnamed” bidder is low-cost rival Wizz Air, which has made no secret of its ambitions to gain share at EasyJet’s Gatwick hub. Wizz Air, who has reportedly backed off from any further bids, also shares a common fleet of Airbus A320 aircraft with EasyJet. The proceeds of the 31 for 47 rights issue, which is priced at GBX 410, will be used to strengthen the group’s balance sheet and provide flexibility to act on growth opportunities that arise during the recovery. The rights issue comes as somewhat of a surprise to us given the group had GBP 2.90 billion of liquidity available at the end of June 2021, which suggests cash generation was weaker than expected over summer. Existing shareholders will need to fork out an additional 35% approximately, of their existing position at prevailing prices to avoid dilution. Shares are trading 10% down on the announcement and the theoretical ex-rights price of GBX 625 compares with our theoretical ex-rights fair value estimate of GBX 765 (based on our GBX 1,070 fair value estimate) per share, which suggests the share still offers upside. We continue to prefer Wizz Air, which has a superior growth outlook at a higher discount to fair value.

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.

EasyJet is the second-largest low-cost European airline behind Ryanair. The airline focuses on serving the leisure traveler and cost-conscious business traveler. In 2019, it served 96 million passengers, with annualized growth of 8% from 65 million passengers in 2014. It operates a network route structure and holds number-one or number-two positions at multiple high-traffic primary airports. We believe the cost-restructuring program underway could rationalize its cost base and drive EBIT growth of 10% per year over our five-year forecast period, from precoronavirus levels.

No-moat EasyJet reported a headline loss before tax for first-half 2021 of GBP 701 million, in line with expectations, and showed an improvement in second-quarter profitability to a loss of GBP 278 million, from a loss of GBP 423 million in first-quarter 2021, despite lower revenue and passenger numbers. Cash burn of GBP 469 million in the second quarter has also improved, from the GBP 969 cash burn in the first quarter, largely due to lower working capital outflows. The firm ended the first half with GBP 2.9 billion liquidity, which we believe is sufficient to see the group through the recovery as cash outflows are reduced in line with increased traffic, as the U.K. and European Union roll out their respective vaccination programs and start easing travel restrictions over summer. Despite low visibility and high uncertainty, we remain confident the group’s focus on consolidating its positions at key hubs, coupled with the improvement in its relative cost position, could see it emerge from the crisis in a strong position with structurally higher profitability. We make no changes to our GBX 1,090 fair value estimate and believe shares are not offering a sufficient margin of safety to offset the very high uncertainty.

No-moat Wizz Air is the Goldilocks of the airline industry--big enough to matter to suppliers, but small enough to enjoy a substantial runway of profit growth before reaching maturity. We upgrade our fair value estimate to GBX 6,800, from GBX 5,000, and believe the market does not fully appreciate the company's revenue growth and margin expansion opportunities. The coronavirus pandemic brought air travel to a near standstill, while the International Air Transport Association forecasts airline traffic to only recover to 2019 levels by 2024. The conventional thinking adopted by the market is that low-cost airlines, or LCCs, should recover faster than network peers due to lower and more flexible cost structures, and robust balance sheets, while benefiting from a relatively sharper recovery in short-haul leisure travel. While most airlines will use the downturn as an opportunity to restructure costs, we believe Wizz Air's growth and cost-reduction opportunities are more sustainable in nature.