How easyJet extended six-week rally past 18%

After a terrible end to 2018, our head of markets explains why easyJet is trading at a two-month high.

Given the recent profit warning from Ryanair (LSE:RYA), easyJet (LSE:EZJ) has managed to keep its focus squarely on navigating the turbulent environment in which the airlines operate.

There is some positive momentum which has carried through from the full-year numbers, with total first-quarter revenues up nearly 14%, ancillary income having risen 20% and passenger numbers also showing a healthy increase of over 15%. 

Meanwhile, the outlook in terms of future bookings is ahead of the same period last year, while a focus on costs will continue to be vital to operational success, particularly now that the benefits from the bankruptcies of Air Berlin and Monarch, as well as the previous cancellations at Ryanair, have now washed through. 

In the meantime, the company's dividend policy remains progressive, with both the current and projected dividend yield of over 5% providing some solace.

Source: TradingView (*) Past performance is not a guide to future performance

However, as is often the case within the airline sector, headwinds abound. Although the company declares itself well prepared for Brexit, it cannot control the effects which a poor outcome could have on consumer confidence. 

In addition, while easyJet gets into the swing of running out of Berlin's Tegel airport, there is a dilutive effect on income and the overall margin between revenue and cost per seat remains wafer thin. A move to new accounting standards is also negative in the short-term, while the Gatwick drone chaos was something of a financial irritation, not least in reported passenger numbers.

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These general concerns have weighed heavily on the shares, which have dropped 27% over the last year, as compared to a 9.6% dip for the wider FTSE 100 index. Indeed, the decline has left the easyJet share price flying perilously near the levels which could make it a candidate for FTSE 100 relegation, which could leave investors twitching uncomfortably in their seats. 

As such, there have been some downgrades to the stock of late, which has resulted in the market consensus of the shares easing to a 'hold', albeit a strong one.

*Horizontal lines on charts represent levels of previous technical support and resistance. Trendlines are marked in red.