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EasyJet to Review Funding Options After Posting $1.1 Billion Loss

Nov.17 -- EasyJet Plc Chief Executive Officer Johan Lundgren discusses the potential impact of a Covid-19 vaccine on demand. He also comments on funding options and costs after Britain’s biggest discount airline posted a loss of 835 million pounds ($1.1 billion) for the year through September and extended the terms of a government-backed loan in the U.K. to bolster liquidity.

Video Transcript

- I wonder what is your most current experience-- you current experience this November of flying around Europe? Paint the picture for us, Johan, about how tough things are.

JOHAN LUNDGREN: Well, first of all, it's fair to say that as we speak, there's very little flying going on across Europe in its totality. EasyJet, we're predicting to not fly more than 20% of the planned capacity for the quarter that we're in. But I also think it's fair to say that it's definitely a underlying strong demand for travel.

We saw that when the Canaries was, for an example, moved from the quarantine list, the bookings went up with close to 900%. And you know, as long and for every day that these travel restrictions are in place, it actually increases the pent-up demand there. And of course, the news of the vaccine is also a very helpful message, because it will ultimately give customers more confidence to make future travel plans.

- At the bank, HSBC analysts there have recently said that November could be as bad as it gets for the European aviation sector. Is that your working assumption as well, Johan?

JOHAN LUNDGREN: Well, I think it's fair to say that, you know, we have taken a number of steps throughout this pandemic to put us in a good position. We've been reducing the costs. We got access to liquidity. And of course, now we're seeing more of the good news coming out of it in terms of the vaccine, but also then, you know, further development and also on how the quarantine can be more effective with perhaps less days that you would need to quarantine coming into countries.

We see developments also in testing. And once again, just the announcement of the vaccine, the news of that, we saw an increase in bookings quite significantly. So it shows that the underlying demand is really, really there. And hopefully, we can see a strong recovery coming very soon.

I think it's fair to say that nobody knows exactly when it's going to happen. But what we do know is that the recovery will be strong when it comes, because ultimately people generally on the line want to fly, and they want to travel.

- How much flying do you want to do around Christmas, though, Johan? Is winter a sort of a lost cause for you? Or are you still optimistic you can see an uptick in visiting friends and family via far traffic over that period?

JOHAN LUNDGREN: But we know that customers, you know, would like to travel and would like to make arrangements also for the Christmas and the new year, and as you said, to visit friends and family. But it all comes back to what the travel restrictions will be. And the travel restrictions, as you know, is a consequence also about, you know, how the infection rates are developing.

But hopefully, if we are getting some testing in place, and if we can see also refinement of the travel restrictions and its quarantine, we can also see that there might be an uplift as soon as Christmas and New Year. But it's still a lot of uncertainty around. So we just have to wait to see what happens on that.

And meanwhile, make sure that we are preparing ourselves and us up in a good way so we can bounce bag, and we can take part of the recovery when it comes. And that's what we've been spending a lot of time and focus on at EasyJet in-- throughout this whole period as well.

- Johan, do you need any more cash at this point? You've raised money in various ways-- commercial paper. You've done a sale and leaseback. Are you looking for any more cash at this point?

JOHAN LUNDGREN: Well, we believe that we are in a good position as we speak. But we will continue to review all the options that is out there because still we don't know the extent for how long the travel restrictions will be in place. And you know, we've taken a prudent and conservative point of view in terms of our planning, and that has been the right thing to do. And we'll continue to monitor the situation and see that we all have been-- going to be able to cope with the circumstances that we are in.

- What are the conversations like with European governments at this point, Johan? I think you've extended the payment terms for some of the help you've got from the UK government. Are you looking for further assistance from the German government?

JOHAN LUNDGREN: Well, we're speaking to almost all the governments across Europe the way we operate as well to make sure that we can be recognized for the value that we provide, and that we can get the support that is available out there. And we have been given support also from a number of governments that is out there and will continue to do so.

Aviation and EasyJet in these markets are, you know, in many cases, a vital part of the infrastructure. And it will contribute tremendously to the economy when the recovery is going again. So that's why it's important to make sure that the whole of the sector is also there and intact when the recovery comes, because it would be, you know, absolutely crucial and critical to help the recovery of the economy in these countries.

- Are you going to see any of that European governments support forthcoming, do you think, Johan? We-- should we look ahead for news on that?

JOHAN LUNDGREN: Well, like I said, we've been accessing liquidity and also support from various governments, the furlough system and equivalent system as well. And that is a discussion that we are continuing to have with governments really across the whole of Europe.

And we need to do that because we still don't know the extent for how long this will continue in terms of the travel restrictions. We've seen some good news coming out lately in terms of the vaccine. But once again the prudent thing is to plan, to be conservative, but preparing yourself also that you are there to bounce back strongly when the recovery comes. And that means that we also need to have funding in place. And like I said, I think we are in a good place for the time being, but we will continue our discussions to look at the options that is available to ourselves also going forward.

- Some airlines might come onto the market at this time, Johan. We are seeing talk of M&A in the Spanish sector, for example. Is M&A out of the question for a business like EasyJet because of the tough time that you're going through at this point? Or can this be an opportunity to buy up smaller rivals?

JOHAN LUNDGREN: Well, I think the focus for ourselves at EasyJet, that I actually do think that that is the primary focus for almost all the airlines that is out there is really to manage and control the things you can control yourself. And in our case, we've taken swift and decisive action in terms of reducing the cost, managing the cash burn, and then also getting access to liquidity.

So it's not entirely clear and apparent to me that there will be a lot of M&A, you know, activity going forward from there, because I think that everybody's focused on dealing with what they have at their hands. But you never know these things. But I do think that what I've said earlier is that, you know, strong players such as EasyJet is going to come out stronger in this. And weaker players will come out weaker or potentially disappear. So it's not apparent either that there needs to be M&A activities in order to see changes into the competitive landscape because some airlines will perhaps not just make it.

- The lobbying force for the sector, the lobbying message for the sector, Johan, has been very much around rapid testing at airports and where and how can that be implemented. Do you see that coming in any shape, on any of your routes, meaningfully soon?

JOHAN LUNDGREN: Well, we certainly hope so. And we're waiting to see what the final recommendations would be here of the task force in the UK as an example of when it comes to things like testing and then also quarantine, and then also, you know, how quickly we can see a roll out of the vaccination program. I've written to the prime minister in the UK here yesterday and offered the support of EasyJet.

We have the largest fleet in the UK, and we have up to 4,000 of our fantastic crew that could be helpful in distributing and administrating this vaccine. And I think the more we can do and work together with all the stakeholders, airports, airlines, governments, and everybody involved in this to make sure that we can get these measures in place, the sooner we will see recovery taking place. And that's where the focus is from our side.

- That's an interesting-- and interesting thought about the role that your employees could play at this time. Johan, just finally, when we think about the size of the industry, the size of the aviation industry, the low-cost industry in Europe going into this crisis, do you think it will be structurally smaller on the other side of this pandemic?

JOHAN LUNDGREN: No, I don't think so at all. And I think that, you know, we're going through different phases in this crisis. I think we're into the phase now where it's about the pandemic. It's about the infection in itself. And when that becomes under control, we're going to see then the recovery that will be more similar to previous downturns than we've seen in the past.

And we know what's going to happen in downturns. We know that short haul will recover quicker than long haul. We know that leisure and holidays will recover quicker, and the business travel as an example. And we know that people and customers will gravitate towards brands that they trust them and that represents value for money.

That has been the same trend in all the downturns. And those are really the core foundations that EasyJet strength, which makes us believe that we're going to bounce back from this very strongly. But I don't think for a minute that the sector, when we come out of this, is going to be more in years to come.

But we don't know exactly when it's going to bounce back to 2019 levels. I think most industry commentators reckon that would be around 2023 as an example. But it can come sooner, and it can come slightly later, but we know it's going to happen. And down the line, the demand for travel and flying is very, very strong. So when their restrictions are lifted or removed, we're going to see the recovery coming back again.