We are stuck with easyJet’s shambles

Like thousands of other travellers, I am due to fly with easyJet out of Gatwick next month. For probably the first time in my life, I wish I was flying Ryanair from almost anywhere else.

EasyJet has taken over from British Airways as the poster airline for last minute cancellations and delays, while Gatwick has replaced Manchester as the equivalent for airports. On Monday easyJet said it would “proactively consolidate” flights to “build additional resilience”, after both London Gatwick and Amsterdam’s Schiphol said they would limit the number of passengers permitted to fly in July and August.

EasyJet depicts the problems as an industry issue — even an economy-wide one of supply chain disruptions caused by labour shortages — rather than admit it has handled things especially badly.

Clearly it is far from the only one affected, and airports and ground-handling groups deserve their share of the blame. Yet last week it cancelled 146 UK departures, according to data from airline analytics provider Cirium, more than any other airline. That will be partly because it’s the UK’s biggest, running flights from some of its busiest airports, but then Ryanair didn’t make the top 10. And if it was so impossible to predict that cuts to schedules might be needed to smooth things out, why then did British Airways cancel flights through to September from as early as April to increase reliability?

EasyJet’s response is that it has run a service up to 2019’s standards for all except two weeks: the first week in April and May’s half term. Still, it is surely not good enough to run a service that is up to scratch except when people most want to use it. And it should be foreseeable that another extended crunch might be coming with the onset of the summer holiday season.

You might think that flirting with a reputation for chaos and cancellations would hurt an airline reliant on discretionary travel. The schedule cuts will have some financial impact. EasyJet cautioned capacity would be lower than expected and costs higher; projections by analysts at Peel Hunt and Goodbody of a profit for this year flipped to a loss.

But all that seems to be outweighed by consumers’ desperation to get away. Chief executive Johan Lundgren says disruption has had no impact on demand, with bookings for July to September in line with 2019. Barclaycard data showed earlier this month that consumers increased their spending with airlines and travel agents in May despite April’s issues, even as they cut back almost everywhere else.

And despite months of bad headlines almost all analysts have a buy rating out on the stock, S&P Global data show. Most airlines have received some share price punishment for cancellations, reckons Peel Hunt’s Alexander Paterson — even those that haven’t cut any flights. Analysts are worried about the effects of rising fuel prices and a consumer downturn, not the potential for a reputational hit to dent demand. Since this year’s earnings will be blighted by Covid-19, airlines are priced on next year’s instead. EasyJet appears more appealing than most.

Low cost carriers tend to hold up better than flag carriers during recessions, since consumers trade down rather than stay home, Morgan Stanley analysts noted last month. Airlines’ performance during periods of high oil prices caused by external shocks is less encouraging, with margins likely to suffer if weakening consumer demand leaves airlines constrained on pricing. But even then, Morgan Stanley reckoned easyJet and Ryanair looked the best of the bunch, with most upside in a steady recovery and least downside in a downturn.

EasyJet also has, in the words of HSBC analyst Andrew Lobbenberg, “decent fuel and US dollar hedging”, unlike budget rival Wizz which was late to hedge as the oil price climbed. EasyJet’s focus on western Europe has also helped it dodge wavering demand for destinations in central and eastern Europe in the wake of Russia’s invasion of Ukraine.

Other airlines similarly constrained by staff shortages have helpfully cut capacity on easyJet’s routes, note Berenberg, giving it greater pricing power. While there is doubt about next year’s fares, this year seems solid with July to September prices up 14 per cent. At last month’s share price of 530p, Berenberg analysts had it trading on 12 times 2023 earnings, more or less in line with its 2015-19 median.

EasyJet is the beneficiary of an acronym familiar to plenty of equity market investors of recent years: Tina, or There Is No (good) Alternative. Passengers lack many better options. So too do airline investors.

cat.rutterpooley@ft.com
@catrutterpooley