EasyJet, Ryanair And Wizzair Provide Pointers For A Post-Omicron Summer

The recently released earnings of the three leading European low-cost carriers for the last quarter of 2021 provide an important indicator of the effects of Omicron and importantly, an outlook for the coming months and peak summer 2022 season. All have encountered their share of challenges but all sound a more optimistic note whilst cautioning over further Covid impacts.

easyJet anticipating a bumper summer in key markets

The first of the LCCs to report, easyJet’s losses were almost halved in Q1 (its financial year begins October) to £213 million ($289 million) and it saw strong October and November performance with load factors above 80%. However, as Omicron began to affect demand, December load factor fell to just 67% with travel for the peak Christmas period dampened. easyJet flew just 64% of 2019 capacity in the quarter, much lower than that offered by the other major LCCs. 

For Q2 (January-March for easyJet), capacity on sale remains cautious at 67% of 2019 levels, which is understandable whilst Omicron’s influence remains and for what is a traditionally weak period of the year. Although easyJet sees a more positive outlook, it highlights the challenge of visibility, with the ongoing tendency for passengers to book much later due to uncertainties about travel. 

• Benefit from end to UK travel restrictions

Recent removal of travel restrictions by the UK government, however, is something from which easyJet should be a strong beneficiary as it is heavily exposed to this market, especially for summer leisure traffic to the Mediterranean. It has already seen a surge in bookings for Easter and expects “a strong summer ahead, with pent up demand which will see easyJet returning to near 2019 levels of capacity.”

Unlike Ryanair and Wizzair, easyJet reduced its fleet during the pandemic, by around 30 aircraft, but will grow back partially in summer 2022 and has a significant forward order book, though this is largely for replacement rather than growth. Despite its constrained fleet, easyJet is focusing on agility, moving aircraft around its network to take advantage of opportunities. It is also prepared to lease in short term capacity where it sees value in doing so but it does not have the same level of flexibility for opportunism as its rivals.

Using some of the proceeds of a successful rights issue in late 2021, easyJet has secured new slots at several of its key airport bases. This includes London Gatwick, where it will add around 15 additional aircraft, having reached a deal with British Airways to lease slots. Ironically, it will face increased competition at the airport from BA’s newly established lower cost Gatwick subsidiary, as well as from additional aircraft placed by Wizzair. (See below)

easyJet needs to have a successful summer in order to cut losses and spread its overhead costs over significantly increased output, so the coming months are pivotal. The impact of new variants will influence the prospects for this and the allocation of capacity by competitors will also be a key factor.   

Wizzair quarterly loss up but long term ambition strengthened

Wizzair made progress in Q3, achieving strong year on year passenger and revenue growth compared to the exceptionally low base of 2020. However, this did not keep up pace with additional costs generated from capacity growth, hence operating loss increased by 50% to €213.6m ($241.5 million). End of year performance was also hit by Omicron and Wizzair expects this to carry through to a slightly higher operating loss in Q4 than that incurred in Q3. In an indicator of this, traffic for January grew, but delivered only a 61% load factor.

It is nevertheless pushing forward on building capacity, using price to stimulate demand. Whilst it may take a hit on this through lower fare levels, it is producing increasingly strong ancillary revenues (such as baggage and seat selection) which amount to an incredible 60% of total revenue. Wizzair is cautiously optimistic for spring and summer where it expects to operate at full capacity. It is ramping up crew numbers now and bringing forward aircraft orders in anticipation. Its fleet will grow from 150 aircraft currently to 170 in the peak period.

New routes and bases continue to be added and in particular a base at London Gatwick will open. Slots have been secured from Norwegian which will allow five aircraft to be based there from this summer. Wizzair’s objectives go well beyond this however, with an ultimate objective to base 20 or more aircraft at Gatwick. This will lead to progressively more competition for easyJet at its largest base. In another strategic step, it is also doubling the number of aircraft at its Abu Dhabi subsidiary from four to eight, with many new opportunities into which it can tap in that part of the world.

• Plans for 500 aircraft fleet

Through a recent additional aircraft order by shareholder Indigo Partners, Wizzair has the ambition to become a 500 aircraft airline by the end of the decade. As it adds aircraft it is also progressively replacing 180 seat Airbus A320’s with larger A321 NEO’s & A321 XLR’s with 239 seats. The XLR’s in the future fleet mix add new opportunities for really long range routes, so I would expect to see further diversification of activity. Up to this point, CEO Jozsef Varadi has always said that he is not interested in the North Atlantic market but a number of long haul routes out of Abu Dhabi and Europe would certainly be viable. 

Aside from the risks posed by covid variants there is one other notable area of exposure to monitor. In the event of Russian military activity in Ukraine, Wizzair has significant presence in the country, including based aircraft. Management will undoubtedly be considering scenarios for reallocating capacity should that prove necessary.

Ryanair cuts losses and powers summer growth  

Ryanair saw a significant reduction in Q3 net loss to €96 million ($108.5 million, compared to a previous year Q3 loss of €321m ($363 million).

It had seen rising volumes and load factors through the autumn, October delivered 11.3 million passengers and an 84% load factor and November 10.2 million passengers and an 86% load factor but Omicron caused a dramatic impact on December and January traffic and revenues. Load factors and passenger numbers fell back significantly to 9 million passengers and an 81% load factor in December. Ryanair wielded the axe on January capacity, cancelling a third of planned services and flying just 7 million passengers for the month. This paid off, with load factor holding up at 79%, much stronger than Wizzair. A particular challenge from Omicron was the loss of more of the important last minute bookings at typically higher fares. Average fare for the quarter was just €25 ($28), down 24%, but that was supplemented by €22 ($24.9) for ancillary revenues. 

Despite these challenges it remains more than willing to invest in aggressive pricing to ensure that it produces strong volumes, its “load factor active, revenue passive” approach. But the level of uncertainty is such that its projection for yearend loss spans a wide range at between €250 million ($282 million) & €450 million ($509 million).

As ever, Ryanair is seeking new opportunities and quick to dispense with those that don’t deliver. Whist a number of new bases have been or will be opened, it recently closed its five aircraft base at Frankfurt over cost increases at the airport.

Ryanair is projecting a strong summer; it has capacity on sale at 114% of 2019 levels. It has already taken delivery of 41 of the larger and more efficient Boeing 737 Max 8 aircraft and expects to have 65 or more in the fleet during the peak season. Looking over the next five years the scale of Ryanair’s ambition is clear, it has revised its forecast upward by 50%, expecting to reach 225 million annual passengers during financial year 2026. This is supported by its order book for over 200 additional 737 Max’s which will bring it to a fleet exceeding 600 aircraft.

Nevertheless, it is not letting its eye off the ball with a clear warning to shareholders “to expect further Covid disruptions before we here in Europe and the rest of the world can finally declare that the Covid crisis is behind us.”  Like Wizzair, Ryanair too has some capacity exposure to a conflict in Ukraine and will be weighing appropriate actions.  

Fingers crossed for summer

Keeping hopes up that we will be spared more Covid pain, the LCC’s are looking well placed for the months ahead but fuel costs are rising and broader inflationary pressures creeping in. There is still plenty to occupy every waking hour for the managements of these airlines.