ii view: holidays unit gives easyJet the edge

Third-quarter results to 30 June

• Revenue up 11% to £2.63 billion
• Total adjusted pre-tax profit up 16% to £236 million
• easyJet holiday business profit up 49% to £73 million
• Group net cash up 50% to £456 million

Guidance:

• Expects Q4 Revenue Per Seat (RPS) to continue the trend of Q3 or low single digit growth
• Expects easyJet holidays to deliver profit growth of 48% year-over-year to over £180 million, up from a previous £170 million or more

Chief executive Johan Lundgren said: 

"Our strong performance in the quarter has been driven by more customers choosing easyJet for our unrivalled network of destinations and value for money. This result was achieved despite Easter falling into March this year, demonstrating the continued importance of travel and this means we remain on track to deliver another record-breaking summer, taking us a step closer to our medium term targets."

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ii round-up:

easyJet (LSE:EZJ) is a short-haul European airline operating a fleet of 343 Airbus aircraft with an average of 180 seats per plane. Just over half of its aircraft are owned and the rest leased. 

The Luton headquartered company operates 1,045 routes to 35 countries between 158 airports. 

For a round-up of these latest results announced on 24 July, please click here.

ii view:

Joining the UK stock market in 2000, easyJet flew 82.8 million passengers during its last financial year to late September 2023, up from the prior year’s 69.7 million. Ticket sales accounted for 61% of revenue during this latest quarter, with ancillary sales such as baggage at 26% and the relatively new holidays business the balance of 13%. 

Geographically, the UK accounts for the biggest chunk of sales at just over a half, followed by Southern Europe at close to a fifth, with France, Switzerland and Northern Europe all generating around a tenth each. In early 2025, current chief financial officer Kenton Jarvis will replace existing chief executive of the last seven years Johan Lundgren. 

For investors, heightened geopolitical tensions and potential for armed conflict provide grounds for caution. Raised borrowing costs pressuring disposal income could yet see some consumers paring back travel plans. The price of fuel remains volatile, concerns for the wider industry’s impact on climate change cannot be forgotten, while the many other factors outside of management’s control such as bad weather, air traffic control strikes and terrorism all warrant ongoing consideration.    

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On the upside, a medium-term target of more than £1 billion of pre-tax profit continues to be pursued. Its growing holiday business now offers diversity not seen at other airlines such as Wizz Air Holdings (LSE:WIZZ) and Ryanair. Net debt accumulated during the pandemic has turned to net cash, with the move underpinning the airline’s previous restarting of a dividend payment and a forecast income yield of close to 3%. 

In all, and while the potential volatility of airline shares should never be forgotten, a consensus analyst estimate of fair value above 600p per share suggests the City sees easyJet as a player to prosper over the longer term.  

Positives: 

• Growing its holidays business
• Strong focus on costs

Negatives:

• Uncertain geopolitical and economic outlook
• Many factors outside of management’s control can hinder performance

The average rating of stock market analysts:

Buy