The UK’s largest airline by passenger volume – easyJet – has announced a half-year pre-tax loss in excess of £200million this week, despite carrying a record 33.8m passengers for the period. We take a look behind the headlines to see how Carolyn McCall and her colleagues are plotting a course back to profitability.
If you read the papers you see headlines like ‘EasyJet takes Hit on Weak Pound’ (Independent) and ‘EasyJet plunges to £236m loss’ (The Times). This seems pretty stark at first – but move away from the mainstream press and more realism creeps in ‘EasyJet pre-tax losses deepen on sterling hit and Easter timing’ (Financial Times).
Carolyn McCall, chief executive, explained that the loss ‘reflects the movement of Easter into the second half as well as currency effects which together had an estimated impact of circa £127m on the bottom line’. Easter really is a ‘moveable feast’ – and being mid-April has pushed the passenger and revenue spike the wrong side of the reporting line. Brexit has also had an impact. Aviation fuel is traded in USD, and this period’s average exchange rate was USD1.25 compared to USD1.50 for the same period last year – quite an increase in cost.
So, external factors help to explain the losses – but what are the easyJet team doing to improve results?
Listen to Carolyn McCall’s speeches or look at the airline’s industry announcements, and the picture seems a whole lot rosier.
Firstly, easyJet is focusing on its brand – that seems a strange thing to do with a backdrop of financial pressures, but not if you look at the outcome. In 2017, a significant number of passengers flown (75%) also flew in the previous year. Repeat business is a very healthy sign, and indicates that easyJet has managed to become a preferred Low Cost Carrier (LCC) brand in the eyes of many fliers.
Then there is the investment in the fleet. Upgrading to A320 NEOs will increase capacity by 30 seats to 186 seats for standard flights. Investments in 30 bigger A321s will take maximum capacity up to 235, increasing the flexibility to address both thick and thin routes. It will also address the challenge of slot-constrained major airports.
EasyJet is adding seats at a faster rate than other competing LCCs such as Norwegian and Vueling in the hope of meeting and driving demand, particularly to and from Mediterranean routes. It is also looking at gaps in the market, such as France, where LCC penetration is only 23% compared to the 46% average across Europe.
Bigger planes and the use of major airports will enable easyJet to push hard for business travellers, who ‘book late and expensive’ adding to sales and profits. EasyJet estimates that these represent 19% of their traffic, and is looking to build on its ‘high-quality LCC’ image to broaden their appeal on short-haul business routes.
Whilst it’s not going to be easy (pun intended) it does look like easyJet’s half-year performance is more of blip than anything else. We do hope so – they’re the UK’s largest airline by passenger volume, and although not yet a customer of ours, we wish them well.
Nigel Dowden, Director, Anari