EasyJet Financials Lifted by High Demand and Ancillary Revenues

Europe's second largest airline, EasyJet, pulled off what is becoming the norm in the pandemic recovery: revenues that exceed pre-crisis numbers on significantly fewer passengers.

But it was not high airfares that lifted UK-based EasyJet during the first quarter of its 2023 fiscal year, or the three months ending in December. In fact, direct passenger revenues were down 13 percent compared to the same period in 2019, the airline reported Wednesday. No, it was ancillary revenues that really buoyed the airline's total take to up more than 3 percent year-over-three-years to £1.5 billion ($1.8 billion). Ancillaries jumped an impressive 35 percent to £406 million. EasyJet's package holiday business, which launched in November 2019, also boosted December quarter revenues.

The revenue increase came even as EasyJet flew 21 percent fewer passengers, on 8.1 percent less capacity in the December quarter than three years earlier, company and Diio by Cirium data show.

"Strong booking performance, aided by the airline's step changed revenue capability, has driven an £80 million year on year boost in the first quarter with continued momentum as customers prioritize spending on holidays for the year ahead," CEO Johan Lundgren said.

Higher revenues on lower capacity has become a hallmark of the Covid recovery. After significant operational disruptions last year, airlines cut their capacity plans and slowed the recovery of flights — even as travel demand surged. The result has been higher airfares, and other airline revenues, as people willingly paid more to travel than they did in 2019. The situation is expected to continue this year with strong demand and limited capacity recovery or growth.

Airline profits, however, are a different story. The slower-than-expected capacity recovery means many carriers are operating with cost structures optimized for a larger airline. And, with staffing issues still rife in many markets, most are loathe to cut fixed costs and instead are writing off the excess expenses as transitory. In other words, costs will normalize as schedules come back.

EasyJet is no exception to this. Total costs per seat excluding fuel increased 24 percent year-over-three-years in the December quarter, compared to a total revenue per seat increase of just 17 percent. The airline posted an earnings before interest and taxes, or EBIT, loss of £122 million.

Lundgren, in his prepared remarks, said the airline expects a profit for the fiscal year ending in September. This will be driven by continued strong travel demand in Europe. He did not comment on EasyJet's cost outlook.

EasyJet's revenue recovery is, in part, the result of changes to its network made during the pandemic. While maintaining a strategic position in many of Europe's slot-constrained hub airports, like Amsterdam Schiphol and London Gatwick, it has grown in key Southern Europe markets that have been among the first to see travelers return. Seats to Germany, one of EasyJet's largest markets three years ago, have been cut by nearly 71 percent, while seats to Greece and Portugal have jumped 33 and 34 percent, respectively, Diio data show.

Last year, EasyJet acquired additional slots at the Lisbon and Milan Linate airports, as well as airports in Greece, to support its growth in those markets.

Lundgren did not comment on the performance of EasyJet's new flights to Greece and Portugal. However, other airlines with large presences in those markets, like Aegean Airlines, have posted sizable profits on robust travel demand.