ii view: easyJet – surviving pandemic and recession

Despite recent optimism around results, shares in this European airline are down around 8% over the last month. Buy, sell, or hold?

Full-year results to 30 September

• Revenue of £5.8 billion, up from £1.5 billion
• Adjusted pre-tax loss of £178 million, down from a loss of £1.1 billion
• Net debt down 22% to £700 million
• No dividend payment

Guidance:

• Expects first quarter Revenue Per Seat (RPS) up 20% year-over-year 

Chief executive Johan Lundgren said: 

"easyJet has achieved a record bounce back this summer with a performance which underlines that our transformation is delivering. easyJet does well in tough times. Legacy carriers will struggle in this high-cost environment. Consumers will protect their holidays but look for value and across its primary airport network, easyJet will be the beneficiary as customers vote with their wallets.”

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ii round-up:

easyJet (LSE:EZJ) is a short-haul European airline operating a fleet of Airbus SE (EURONEXT:AIR) aircraft.

It operates across more than 900 routes to over 30 countries and from just over 150 airports. 

For a round-up of these latest results announced on 29 November, please click here.

ii view:

The Luton headquartered airline owns three-fifths of its aircraft, leasing the balance. Employing over 13,000 staff, it is pursuing a strategy including looking to build Europe’s best network, growing its revenue diversity as via ancillary sales like baggage and continuing to focus down on costs. Revenue diversity also includes expanding its easyJet holidays business in partnership with major hotel brands such as InterContinental Hotels Group (LSE:IHG) and Accor SA (EURONEXT:AC). 

For investors, a cost-living crisis cannot be ignored and, as with businesses generally, elevated costs such as fuel warrant consideration. The war in Ukraine and on the doorstep of Europe should not be forgotten, while the general uncertainty of the weather and current industrial action by UK customs staff is a threat.

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On the upside, demand for travel has rebounded in the wake of the pandemic. Management initiatives to raise ancillary, or additional revenues like baggage look to be bearing fruit, with plans to add further services such as those for Wi-Fi made. Growth for its holiday business has also been seen, while cash and money market deposits of £3.6 billion and net debt of £700 million suggest a robust balance sheet.

On balance, and with the hit from the pandemic now having been replaced by concerns about a recession, investors may decide to await more economic clarity.

Positives: 

• Growing its holidays business
• Strong focus on costs

Negatives:

• Highly uncertain economic outlook
• Factors outside of management’s control like the weather can hinder performance

The average rating of stock market analysts:

Strong hold