easyJet benefits from bumper summer tailwinds

The tailwinds of a successful summer period have left easyJet (LSE:EZJ) in a commanding position, and the group seems set fair for further expansion and profitability.

Adjusted pre-tax profit of £610 million for the 12 months ending 30 September represents an increase of 34%, underpinned by revenue growth of 14% to £9.3 billion, where additional capacity, pricing strength and a significant contribution from easyJet holidays boosted numbers.

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Pre-tax profit per seat rose by 24% to £6.08, with higher passenger numbers (the group flew 6.9 million more than the previous year) and efficiencies each playing their part. Capacity increased by 8% to 100.4 million seats, and overall the Return on Capital Employed was another show of strength, rising from 13% to 16% as a number of positive factors combined. 

The performance in the second half of the year, including the peak summer season, saw record pre-tax profit of £960 million, an 11% improvement from the year previous, with passenger growth of 7% and of 42% for the holidays business.

Indeed, for the year as a whole, the holidays business is coming into increasing focus. From all but a relatively recent standing start, the unit now represents some 31% of group pre-tax profit, in this period rising by 56% to £190 million, against a previously estimated number of £180 million. Customer numbers rose by 36% and revenues by 47% to £1.14 billion, and from the current base of 2.6 million easyJet is anticipating growth next year of an additional 25%, cementing the unit’s position as an important contributor to profit.

It seems that the launch of the holidays unit has come at the right time, with cost-conscious consumers searching for value packages, and the group has high hopes for the unit’s longer-term contribution to overall profits. This also chimes with the group’s value-conscious appeal and the increasing body of evidence which tends to suggest that the family holiday remains almost sacrosanct and outside of normal budgetary restraints, which has played into the hands of easyJet and its keenly priced offerings of flights and holiday packages. Its network of destinations are usually convenient and difficult for some of its competitors to mirror, while the group has also managed to keep a relative lid on its prices.

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The group also continues to see the benefit of ancillary revenues, which include the likes of customer payments for personally allocated seats, baggage and food. Now accounting for 30% of seat revenues, customers are clearly still readily prepared to pay for these extras, while also adding another string to the group’s revenue bow.

The general strength of the numbers overall has had other positive side effects, such as a net cash position of £181 million compared to £41 million previously, enabling a substantial increase of the dividend from 4.5p per share to 12.1p. While the projected yield following the increase is still a relatively modest 2.2%, it is nonetheless a clear statement of intent.

easyJet’s outlook is equally upbeat as the airline continues on a strong flight path. Capacity will further increase by 3% over the next year to 103 million seats, and the addition of new planes which are much more fuel efficient will add to overall cost savings.

The group will also focus on reducing the usual losses from the winter period, adding new destinations to tempt travellers to experience different visits to the more traditional holiday spots, and the group is already 80% booked for the first quarter of the new year and indeed 26% booked for the second. 

Of course, there is a host of external factors outside of the industry’s control, which have made the airline industry a difficult investment destination. These have ranged over the years from the possibility of strike actions to conflicts and volcanic ash clouds, let alone the major shock which the pandemic brought. Indeed, the easyJet share price remains some 52% shy of pre-pandemic levels, indicating how much damage can be done by exogenous events and how difficult the recovery path can be.

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Even so, these are a cost of doing business and when the clouds are clearing as they appear to be at present, the potential for strong profitability shines through. For easyJet, a bumper summer season adds to some promising developments especially within the holidays business, and a share price rise of 33% over the last year, as compared to a gain of 10.7% for the wider FTSE100, has reflected this new era of growth.

The general view towards the company is also undiminished, with the market consensus of the shares as a buy on optimism for the longer term still firmly intact.