easyJet secures long-term slots with bumper Airbus order

UPDATE - easyJet has ensured long-term delivery slots for new aircraft by placing an order for 157 A320neo family aircraft for delivery between FY29 and FY34. easyJet's shareholders approved the transaction on December 19 during a general meeting. The carrier first said on October 12 that it intended to order 56 A320neo’s and 101 A321neo’s for replacement of A320ceo family aircraft. The low-cost airline still has 158 A320neo family aircraft on existing orders, including the one for 56 that was finalized at the 2022 Farnborough Airshow. 69 aircraft have already been delivered from previous orders. The airline has converted now 35 A320neo’s into A321neo’s. This brings the model split to 90 A320neo’s and 68 A321neo’s for deliveries set to be completed in FY29. The new order for 157 extends deliveries by five years through FY34 and will bring the neo-fleet to 315 aircraft, excluding the purchase rights. This grows the fleet to 464 aircraft in FY33. easyJet is in exclusive negotiations with CFM for LEAP-1A engines. The order needs shareholder approval, which is due before the end of this year. With the new order, the airline will get enough new-technology aircraft to phase out all 95 A319s and about half of the 172 A320ceo fleet, which will become “economically unviable for our high-intensity low-cost operation and will need to be replaced if we are to maintain the current scale of our business.” The new aircraft will also help easyJet to meet its sustainability targets of getting to net zero in 2050 thanks to their substantial fuel benefits. Chief Financial Officer Kenton Jarvis said during an analyst presentation on October 12 that easyJet launched a tender with both Airbus and Boeing in December 2022. Negotiations followed between February and June, with final negotiations starting in July and August when the airline confirmed reports in a trading update. Airbus came out as the winner by offering superior economics and favorable delivery dates, while also offering conversion to A321neo’s for the current order. Given that easyJet is so strongly connected to Airbus, it seems unlikely that Boeing will really have stood a chance of winning this order. Kenton is confident that Airbus will be able to deliver the aircraft on time, despite continued supply chain issues. In fact, easyJet is taking delivery of three more aircraft this year, or ten in total, than anticipated. This confirms that Airbus is doing its very best to meet contractual obligations. For 2024 and 2025, Kenton is also optimistic. Confirming the trends By securing long-term delivery slots, easyJet follows the trend of other airlines like Lufthansa and United to place orders now for delivery in the next decade. “Delivery slots for narrow-body aircraft with circa 200 seats are very limited until at least 2029 from both Airbus and Boeing. easyJet anticipates that this limitation will extend into 2030 and beyond within the next year. By placing an order now, easyJet ensures a supply of future delivery slots between FY29 and FY34 to retain its current scale through replacing aircraft leaving the fleet and this enables easyJet to execute its disciplined growth strategy.” Confirming another trend, easyJet also is also to accelerate the upgauging of the airline. With the order conversion and the new order, the carrier adds another 146 A321neo’s with 235 seats to the fleet in FY33. This brings the total number or 183. The average seat count will change from 179 now to the low 190s in FY28, which translates into a five to six percent capacity growth just from upgauging. Deliveries of aircraft on the latest order will grow the average seat count to the low 200s in FY34. Phasing out the A319s from 2024 through FY28 will produce over £3 per seat cost saving. The final A319 will leave the fleet in FY30. “This will result in further improvements in cost efficiency, with the fixed costs of each flight spread across a greater number of passengers. These economics see the A321 optimally deployed on a subset of the network where the A321neo’s higher trip costs are more than offset by its ability to capture additional revenue on routes which are typically high demand, slot-constrained or longer in sector length. The access to additional A321neo aircraft will also provide easyJet with the opportunity to continue to grow in slot-constrained airports.” The airline has the flexibility to further change the fleet mix. easyJet will finance the order through a combination of internal resources, cash flow, sale and leaseback transactions, and debt without the need to ask shareholders for additional funding. In the press release, the airline values the order at $19.9 billion in list prices, but these are 2018 prices that are insignificant now. It also won substantial price concessions from Airbus. Record summer In a trading update for FY23 on October 12, easyJet said it expects a profit before tax of between £440 and £460 million, of which £120 million comes from easyJet Holidays. These are preliminary results that will be confirmed next month for the full year that closed on September 30. The full-year results were released on November 28. The July-September fourth quarter produced a record £650-£670 million profit before tax. Including Q3, easyJet produced a profit before tax this summer of between £850 and £870 million. “We have delivered a record summer with strong demand for easyJet’s flights and holidays with customers choosing us for our network, value and service,” said CEO Johan Lundgren. Q4 revenues per passenger grew by nine percent to £96.41, which confirms that a new revenue model is successful and has driven up profits per seat by 42 percent to £0.60. The plan is to get to £1 per seat over the medium term. Total passenger revenues improved to £1.970 billion from £1.679 billion. Ancillary revenues improved to £790 million from £671 million. This got total revenues to £3.120 billion from £2.516 billion. Group headline EBITDAR for Q4 was £825 million versus £674 million in the same quarter last year, resulting in a Group headline profit before tax at £660 million versus £481 million. The preliminary number for FY23 shows a £450 million profit before tax versus a £-178 million loss before tax. Passenger revenues were up to £5.220 billion from £3.816 billion, and ancillary revenues to £2.170 billion from £1.585 billion, bringing total revenues to £8.170 billion versus £5.769 billion. Group headline EBITDAR improved to £1.130 billion from £569 million. Improving the winter results For Q1 of FY24, easyJet plans to grow capacity by fifteen percent year on year, with yields already ahead over last year and load factors about in line with FY23. Booking trends are coming back to normal patterns again. The airline is keen to improve on one of its weaknesses, which is winter performance. Winter capacity will be up by on average thirteen percent, with the Swiss ski markets seeing a 22 percent increase and city and beach destinations fourteen percent. Part of improved winter results must come from improved productivity from pilots and cabin crew, and another part from growing core markets and bases. easyJet has set new medium-term targets of a profit before tax per seat of between £7 and £10, high-teen margins on return on capital employed (ROCE), a five percent capacity growth, and easyJet Holidays growing a profit before tax to over £250 million. This should get easyJet to a profit before tax of around £1.0 billion. The airline group intends to pay dividends at a ten percent pay-out ratio of profit after tax over FY23 and a twenty percent ratio for FY24. The group had £40 million in net cash by the end of September compared to £-670 million last year. It will repay a £500 million bond that matures this month, having already repaid £1.2 billion in net debt over 2023.

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