easyJet shares rocket 10% as fortunes improve in Q1

The share price is still a long way from its previous high, but easyJet is recovering fast. Our head of markets explains what's driving sentiment.

easyJet (LSE:EZJ)’s low-cost appeal continues to resonate with consumers, as the airline got off to a flying start in its new financial year.

Revenues rose by 83% from the previous year, with the figure of £1.47 billion beating expectations of £1.36 billion. indeed, each of the key metrics showed a marked improvement from the corresponding period last year, such as an increase of 47% in passenger numbers, 36% in revenues per seat and a load factor which increased from 77% to 87%.

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In addition, the group is seeing the benefit of increasing ancillary revenues, which in the period accounted for £406 million of the £1.47 billion total. These additional revenues include the likes of customer payments for personally allocated seats, baggage and food and such revenues have grown by 85% compared to pre-pandemic levels, showing a strong direction of travel.

Meanwhile, its previous foray into widening the travel experience by launching easyJet Holidays continues to attract the attention of a conservative consumer, with a profit contribution of £13 million for the quarter comparing with a loss of £1 million the year previous.

Of course, headwinds remain on easyJet’s recovery path. The cost per seat in the quarter rose by 76%, largely driven by a strong US dollar and higher fuel costs, there were one-off costs associated with leased aircraft and the overall result was a pre-tax loss of £133 million, although the number represents a marked improvement year-on-year from a loss of £213 million.

The immediate outlook comments from the group are also upbeat. The burgeoning strength has continued into the current quarter, and indeed into the Summer period. For Easter, which will fall in the third quarter of the financial year, ticket yields have increased by 24% versus pre-pandemic levels and, given consumer demand, 11 new routes have been released to popular destinations.

easyJet Holidays is also part of the upgrade focus. The group’s previous estimate of customer growth of over 30% has now been lifted to 50%, all of which contributes to easyJet expecting to exceed the current market estimates of a return to full-year pre-tax profit to the tune of £126 million.

Despite the inevitable economic clouds, such as a cost of living crisis which could threaten the consumer’s propensity to spend and rising costs, the easyJet offering is currently bearing fruit. Its inexpensive pricing comes with primary airports as destinations, as opposed to some of its low-cost competitors who fly to less central and therefore less convenient destinations. It is also in planning mode for the busy period to come and hoping to learn the lessons from last year, when operational capacity was tested to the full as passenger demand recovered at a pace which some could not handle.

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The signs of strength in the recovery are encouraging, and the share price has anticipated such an improvement in fortunes in rising by 50% over the last three months. However, the wider picture reveals much more of an uphill struggle to come.

Over the last year, the shares have declined by 21%, as compared to a decline of 8% for the wider FTSE250, while the current share price which is approaching £5 is significantly short of the pre-pandemic levels of approximately £13. The update has been warmly received and should result in some upgrades to a market consensus which currently stands at a 'hold', albeit a strong one.