Question1

EasyJet (EZJ.L) revealed it has managed to cut its losses in half in the final quarter of last year, even though the sudden rise of the Omicron variant had a devastating impact on demand. It posted a pre-tax loss of 213m ($285m) during the three months to December, compared to a 423m loss in the same period in 2020. This was despite the companys load factor, a measure of how many seats were filled, falling to 67% last month, down from over 80% in October and November. The budget airline blamed the slump on the impact that Omicron had on customers confidence and ability to travel during December. EasyJet said it expects Omicron to continue to have a short-term impact in the quarter to March, but hailed an increase in bookings since the UK government decided to remove all travel testing requirements for fully vaccinated passengers. First quarter revenue rose to 805m from 165m this time last year. It flew 11.9 million passengers in the period, up from 2.9 million last year and representing 64% of 2019 levels. Meanwhile, total cash burn was 450m, down from 969m in the same period last year. EasyJet are now considering selling shares to raise additional funds.

The performance of easy jets shares were strong pre pandemic, the leading European low-cost airline, EasyJet shares were attractive pre pandemic because the company had seen its passenger numbers rise markedly. Capital raised from the share issue is earmarked to support the purchase of new aircrafts as part of the groups plans for a rapid expansion during the next few years, which includes the addition of 32 new Boeing 737-700s, more than doubling the size of the fleet.

1. Outline two possible sources of long-term finance available to easyJet.

2. Explain why an expansion in easyJets passenger numbers has increased the need for short-term and long-term finance.

3. Evaluate the view that easyJets decision to raise long-term finance by selling shares is preferable to raising it through borrowing.