Easyjet (LSE:EZJ) — Half Year Results

0:00 Good afternoon, and welcome to the EZJET PLC investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and could be submitted at any time via the q and a tab situated on the right hand corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll, and then I'd like to hand you over to head of investor relations, Adrian. Good afternoon, sir.

0:32 Hi there. Good afternoon, everyone, and thank you for joining me today. I plan to speak for about five to ten minutes just through where we are today currently in terms of current trading, talk through EZJET strategy, and the medium term targets. Then there'll be plenty of questions for you guys to ask any questions that you like. So if we turn to the the intro slide, we've just come through the first six months of our f y twenty five financial year. We've traded through this winter where we saw the results slightly improve year on year when you adjust to the timing of Easter. Easter is obviously an important travel period for a lot of people in Europe, and that moved out of Easter year on year fully into April.

1:17 Therefore, 50,000,000 of value transfer between April and March year on year was seen. So when adjusting for that, we saw a slight reduction in our winter losses, which was a good step forward. As we move through into this summer, we see positive demand. Peak customers continue to travel. Customers continue to prioritize their travel, and we are seeing good demand for that as we move forward into this summer. That's evidenced by being sold more than we were at this point in time last year. So for our peak September quarter, we're currently 42% sold. Yes. There's a long way to go as there is in any time, any year at this stage. However, that is two percentage points up year on year. EZJET Holidays and Seeds performed very well.

2:03 It made 43,000,000 of profits during this winter and is on track for early delivery of its medium term target. Its medium term target is to deliver greater than 250,000,000 of profit before tax. When we think about upgauging, upgauging is one of the other biggest levers that we've got for margin enhancement over the coming years at EZJET. What does upgauging mean? It it means replacing some of our older, smaller, and less efficient aircraft with brand new a three twenty neo or m three twenty one neo aircraft. We've got 82, a three nineteen aircraft, which is your older generation aircraft with a 156 seats on them today. Those 82 aircraft will be largely retired over the next five years, which get which will give us productivity and efficiency benefits as we move through.

2:51 And then if we look at the the balance sheet side of things that we've got a strong investment grade balance sheet, the book value of our owned assets today is £4,600,000,000. When we move through that modernization of the fleet in the a 03/19 leaving to be replaced by a 03/20 and a 03/2021 neos that I just touched on, we will see the book value of our own fleet increase by more than 60% by FY '28, and that will will further strengthen the the investment grade balance sheet that we've got today. So if you spend just a couple of minutes thinking about our strategy, our strategy, we we we articulated our strategy about two years ago, and every decision that we make in the business is focused on these four key pillars of our strategy. So if we walk through each of those, I'll I'll touch on what we've been doing on on each of those. So so building Europe's best network, EZJET operates primarily out of primary slot constrained airports where demand outstripped supply.

3:48 We continue to focus on that. We've added aircraft into Milan Lunorte for the first time. So we've opened a base there with five aircraft. We've opened a base in Rome Fimentino for this summer with three aircraft, and we continue to expand in The UK, opening a base of three aircraft in South End. We continue to look to add new destination points or bases where demand is strongest, giving our customers a better choice of offering where they desire to travel. And we'll continue to do this, but from primarily out of constrained primary airports across Western Europe into Europe or into some of those winter sun destinations in in non European flows such as Cape Verde, Egypt, Turkey, Tunisia, etcetera.

4:35 When we think about strengthening revenue, there's there's two things in there. One is EZJET holidays. If we touch on EZJET holidays for a moment, EZJET holidays to continue to rapidly expand. We launched EZJET holidays just as we came into the pandemic. We then obviously paused it for a couple of years through the pandemic. So so, really, with three years into operational performance from EZJET holidays. Last year, it made a 190,000,000 of profit before tax. This year, we're seeing another 25% customer growth in EZJET holidays, and we're not seeing margins having to be diluted as a result of that significant customer growth. It continues to go from strength to strength and is only 6% of the attachment rate on EZJET seats. And what that 6% is on all EZJET seats excluding domestics, because domestics are not really a package holiday target market. Excluding domestics out of the the network that we fly, 6% of our customers today are also buying an EZJET holiday.

5:34 There is significant headroom for for continued growth within EZJET holidays. And then on the other side, we've been strengthening revenue. You've got everything that the airline does, whether that be cabin bags, speedy boarding, EZJET PLUS, car hire, insurance, etcetera. And we continue to focus on offering the customers the proposition and offering that they want, including in flight retail as well, which is the the service on board, whether that be duty free, coffee, tea, cake, sandwiches, etcetera. And we are we are fully focused on offering the customer the proposition and products that they wish and desire. And then if we look at delivering ease and reliability, delivering ease and reliability is focused on getting the customer from a to b on time every time with a great customer experience.

6:23 I think if you if you follow these yet for a while, we've consistently spoke around delivering the warmest welcome in the sky. We've expanded that to be focused on delivering the warmest welcome in the sky, but also on the ground and how we can support our customers with their experiences on the ground. And that's something that we'll continue to do as we move through this summer. The operating environment that we're operating in is more challenged than it has been historically. Air traffic control delays are significantly higher than they have been historically. They through this winter, they were worse year on year than they were last year. And, also, airspace is congested. We've got the conflict going on in in Ukraine, which, means that that airspace is closed, moving traffic further and further west. EZJET has never historically operated into Ukraine, but what we do see is traffic comes further and further west, bringing in more congestion into our space, which means air traffic control and the the wider airspace is more challenging than it has been historically.

7:22 We are focused on delivering customers the proposition that they want, which is getting on time to their place of destination. And then when we think about our low cost model, EZJET has low cost in its DNA. It was set up nearly thirty years ago to democratize travel, offering affordable fares for customers, letting them go and visit friends and family, go on holiday with their friends, relatives, and and and travel around Europe fundamentally. And that is something that we are fully focused on to continuing to deliver that today. That means that we have to be efficient in everything that we do operationally to deliver attractive fares in constrained airports with an efficient cost base. And we continue to do that through adding increased productivity and utilization through the assets. We saw that this winter, our asset productivity was up 5% year on year. We will continue to do that especially through winter, and we'll continue to look at how we can be more efficient with that within our operations. So this time last year, we purchased a heavy base maintenance facility in Malta.

8:25 That followed the insourcing all about that line maintenance over the last twenty four months. Line maintenance is is your day to day maintenance checks. We've now started to install heavy based maintenance up to 25% of our heavy based maintenance, and it will now be carried out in multi in the facility we purchased last year. That will give us further efficiency through the operational side, and the knock on impact for that will be more efficiency through the cost base. We continue to use data and AI as well in the operations. We we've got a a tool that we use, which is called SkySim, and that simulates our schedule ahead of time. I mean, you can put parameters into that such as what air traffic control will be, what delay minutes will be, what the weather will be like, and it will simulate our network, and it will kick out what it expects our operational performance to be. And that allows us to see any future pinch points and proactively take any actions before we get into the season rather than historically you'd be waiting to see how your network performed and then making decisions in season when it's harder to take action.

9:30 So we can see to to utilize those tools and new tools as we move forward into the coming years. And fundamentally, all all all of our focus on these four key key pillars should enable the output to be delivering our medium term targets, which is on the right hand side of this slide. We are focused on delivering a group PBT to seat of between seven and ten pounds. We set these medium term targets in October 2023, and our focus is on when we set those, we were at £4 and 91 of profit before tax, and we were focused on how we move that to seven to £10. EZJET is also a highly capital intensive industry. We are an asset company, and we are focused on deploying our assets where we can deliver a high teen ROCE. And we'll continue to take action where assets are not delivering that high teen ROCE that we expect. You'll have seen that through this winter where we picked the the tough decision to close bases in Toulouse and Venice, and we will continue to reallocate aircraft around the network to ensure that we are delivering that high teen ROCE.

10:33 EZJET holidays, look, I think they're gonna be there or thereabouts this year on delivering more than 250,000,000 of PBT. That would enable them to reset that target to a new medium term target, and we look forward to updating the market on our new EZJET holiday target as we move through to the year end. And on capacity growth, we expect to grow at 35% CAGR on our seats. That is broadly in line with EZJET's historical growth rate. We are not focused on growing at all costs. If we do not think that we can grow at that rate and deliver a high teen low key and good return, we will not be doing at that rate. However, we believe that's the right growth rate for EZJET. And then what what does that all of that mean if we bring that together?

11:19 The output, we believe, is delivering a profit before tax of more than a billion pounds of PBT. That is significantly higher than EZJET historically has done, and that will be delivered through monetizing better our primary airport network, leveraging EZJET holidays, and continuing to drive efficiencies through the cost base. And that and that is our core focus. And if we spend a couple of minutes on the the value creation side of things, just stepping back into the the the middle column, I think that earnings growth will deliver attractive earnings shareholder returns for the the market. As we think about the other side of things, we've reinstated our dividends. Post pandemic, we we reinstated dividends at 10% of profit after tax in f y twenty three, payable in f y twenty four.

12:09 And then on last year, we we we moved up to a dividend payout ratio of 20% of profit after tax. And we think that is a a meaningful level of dividends, which is payable through cycle. And, obviously, we are at the beginning of a cycle to retire the a three nineteen from the fleet. So you will see elevated CapEx over the coming years, which will give us sustainability alongside structured earnings growth.

12:34 I'll pause there, and we will move on to questions. Please do ask questions in the chat. I'm more than happy to run through all questions. Adrian, thank you very much for your presentation this afternoon. Ladies and gentlemen, please do continue to submit your questions just by using the Q and A tab situated on the top right hand corner of the screen. Just while the company take a few moments to review those questions submitted today, I'd like to remind you that recording of this presentation along with a copy of the slides and the published q and a can be accessed via investor dashboard. Adrian, as you can see, we received a number of questions throughout today's presentation. Can I please ask you to read out the questions and give responses where appropriate to do so? And I'll pick up from you at the end. Yeah. Absolutely. So first question is, could you share any indicators on conversation with booking growth from the Tesco's Clubcard integration or any further integrations plans?

13:24 Look. We we have just set up the the Tesco's Clubcard offering. This gives you access to more than 23,000,000 households within The UK, And we believe that your Tesco's customer will not look dissimilar from the EZJET holiday customer. And EZJET holidays has continued its rapid growth over recent years, but we believe to continue that, we need it's it's about awareness. We're seeing really strong customer satisfaction scores coming through EZJET holidays. That means we are seeing good repeat customer bookings. However, we need to continue to get that brand out there and the partnership with Tesco's Clubcard, I think, will be mutual, but new mutually beneficial for both sides.

14:10 In terms of booking rate, it it's too early to to give any detail on what bookings rate we're seeing coming through from Tesco's Clubcard. Then later in the year, when we've had a bit more time to see the bookings come through, we'll be be happy to share some some further details on that. And if we look second question is on in flight retail profit per seat rose 15% year on year. Where do you see further upside from personalization of third party partnerships? It's great question. So so in flight retail, historically, pre pandemic, we used to make about 43 per seat to roughly £43,000,000 a year from from in flight retail. We believe we should be making a pound per seat, so so just over 100,000,000 from from the in flight retail office proposition. We're we're currently just below seventy p, seventy million.

14:58 So what what do we think is is still to go? I'm absolutely right in terms of the the personalization and how we make sure the product offering onboard is what the customer wants. And and that product offering will change depending on time of day that the flight is or where the flight is departing from and departing to. And we're continuing to utilize data better from our in type in flight retail proposition and offering to to work on that and reducing waste because there's there's a cost of waste as well. So it's you do not want products selling out, so you don't want high levels of wastage as as well on the side. So it's continuing to optimize the the product offering that we're we're providing. We saw some pretty positive results last year from offering Costa Coffee on board.

15:45 That continued to come through. In terms of brand partnerships on board, I I think we'll look to do things where they they make sense. You can now get, Tom Ford and Joe Malone in terms of the fragrances on board. Historically, we haven't done that, and we'll continue to look at fundamentally offering the products that our that our customers would like. But I think there should be another 30 p or $3,030,000,000 of earnings growth from better monetization and better products of from the the in flight retail proposition. The other thing to note on that is we will continue to benefit from flying slightly further in terms of sector length. You'll notice that we are flying further than we have done historically is that network has shifted slightly to flying more into non European flows such as Egypt, Turkey, Tunisia, etcetera.

16:33 Customers on both flights have a higher propensity to spend whilst on board because of their staff on the the aircraft longer. So we should see a a slight benefit from that as we move through the coming years as well.

16:47 So next question is, can we elaborate on the expected returns from the Newcastle base in FY twenty six and whether there will be leisure or city reach focused? So, mean, I think Newcastle will perform very well. If we were to go back to this time last year, we went back into Birmingham with a three aircraft base post pandemic. Birmingham performed very well in year one, and I would expect Southend, which was launched for this summer, to perform very much as Birmingham had. And then as we look forward to summer twenty six when Newcastle opens, I think Newcastle will perform very similar to both Birmingham and Southend. And that's that's driven by, one, we're seeing leisure demand being very strong, especially in regional UK, but also EZJET holidays.

17:34 Those customers generally like to book package holidays, but historically, EZJET has not had an offering on the package holiday side of things. Now we have that. We have an attractive proposition for customers in those regional UK locations. And I I think that we will give more more granularity as we move through. It's only just gone on sale, but I I would expect new classes to perform very well. As we think about the network type, it will be a mix because EZJET is a point to point operator where our aircraft return to their base at the end of the day alongside our pilots and cabin crew. Our pilots and cabin crew are back home at their base, at home with their families in their own beds each night, and that is key. So so a very stereotypical day for an aircraft will look like six flights a day unless it's doing a a long flight down into a non non European flight. So it might say start in Newcastle, then go to Malaga, go back into Newcastle, then it might do a Canary Island flight back into Newcastle, and then it might do a short trip at the end of the day into Amsterdam and back home again.

18:42 Because you you need to get the aircraft utilization and the productivity from it in in the day. So you will find that we will be offering a a good mix of leisure, city, and a few domestics from Newcastle when it goes fully on sale. Next question is how do you see EZJET's competitive position evolving over the next few years across Europe? Great question. I mean, look, I I I think we've seen our position at those constraint strained airports across Europe, not just in The UK, significantly growing as we come out of the pandemics. We continue to take slots where they become available. So we've grown in London Gatwick. We've grown into Milan and Arce where we've never had aircraft based before.

19:27 We've doubled our size in Porto, and Lisbon's coming out of the pandemic, and we'll continue to look to grow. We want to go at 35% a year, and we want to take opportunities in those constrained airports. What we have seen in terms of the the wider market, we've continued to see kind of flag to flag consolidations. Some of the the your your Lufthansa's Air France and IGs are are looking to firm up their their feeder network across Europe, which is why you've seen some consolidation between those carriers and the the smaller flag carriers like Lufthansa and ITA deal that was done most recently. We will continue to benefit from that because as part of those deals, you will normally find that the the commission says that there needs to be some slots released.

20:14 We will look to take slots and positions as part of any remedies on on any deals. I think in terms of EZJET and where we place ourselves, we're we're confident in our own organic journey to deliver a billion pounds of profit before tax, and we are fully focused on executing against our targets. However, when there's opportunities that come up that offer value, we will continue to look to take those. Next question. So you said that we are focused on building you its best network and expansion in non European places like Cape Verde and Tunisia Tunisia. Will this involve m and a? Are you seeking m and a opportunities? No. We do not need the m and a to deliver on those. If we think about Cape Verde, for example, we've launched it from The UK, and we've launched it from Portugal.

21:03 EZJET already has a very strong brand recognition in those source markets where we're flying into Cape Verde from, and and we've seen very strong from those. We we don't need to go out and buy anyone to buy a present. EZJET has a well known brand that is fully understood and highly recognized highly recognizable across Europe. Fundamentally, the majority of our growth growth will come from existing places, so it will very much feel like a an EZJET flight and and network that you'd expect. Newcastle is a good example. You won't find us flying into to random new locations from new Newcastle much of the time. It'll be very much what you'd expect from EZJET into your primary cities like your Geneva, like your Amsterdam, Schiphols, like your Basel, Charles de Gaulle, etcetera, all into those leisure destinations that you very much expect to see in jet in jet flights going into, whether that be the Canary Islands, Greek Islands, Mainland Spain, or more and more into some of these non EU flows, which we are seeing proving to be very popular with our customers.

22:12 That's the the end of the the questions that we've got in the chat. They're currently Adrian, thank you for answering all those questions you can from investors. And of course, the company can review all questions submitted today. We'll publish those responses on the Investor Meet company platform. Just before redirecting investors to provide you with their feedback, which I know is particularly important to the company, Adrian, could I please just ask you for a few closing comments? Yeah. Absolutely. And we just had one one final question come in. So let me let me pick up on that, and then I will wrap up. So the final question here was we've got an ambitious ambitious plan to modernize and expand the fleet to 28. Any issues with aircraft delivery delays? Great question. So what we've seen I think all airlines globally have seen challenges on the production side, whether that be through Airbus or Boeing.

23:01 EZJET is a fully Airbus operated fleet powered by CFM engines. So I think it's it's very fortunate to be in the the position operating those two pieces of equipment that we are very happy with. We are not, however, being insulated from delivery delays. As I said, I think every every airline globally is being exposed to delivery delays. What we have seen though over the last six months is those starting to stabilize. So the the fleet delivery profile that we showed at our half year results a week last Thursday, that is the current view that we will get through from Airbus, and we continue to work constructively with them as we we move through. We're due to get nine aircraft this year.

23:47 We've already had those nine aircraft ahead of peak summer, which is positive. Next year, we're due to get 17 aircraft, then deliveries ramp up to thirty and forty three aircraft. We are very confident that if those deliveries come through, that gives us the fleet modernization to deliver the upgauging benefit of greater than three pounds of unit cost per seat savings, which is a structural key part to delivering the billion pounds of profit for Vortex, and we'll we'll continue to work with with Airbus collaboratively as we we move through the coming periods. I'll I'll look to wrap up there. And I I think as a business, we've we've got what we believe is the right strategy and the output of delivering on that strategy being our our medium term targets.

24:32 And and that is the primary focus is how we execute against that strategy, and we continue to progress towards the billion pounds of profit before tax whilst delivering and moving towards that high teen ROCE. And that is the core focus for us that we believe will deliver attractive shareholder returns on top of the 20% of ordinary dividends on the profit after tax that we'll continue to pay out. And look, thank you very much for joining and and listening in today. Please do follow-up any other further questions that, you want to us. We're always more than happy to pick up. Adrian, thank you for updating investors today. Now please ask investors not to close this session as you'll now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations.

25:19 This may only take a few moments to complete, and I'm sure will be greatly valued by the company. On behalf of the management team of EZJET PLC, we'd like to thank you for attending today's presentation, and good afternoon to you all.