ii view: easyJet shares are hot stuff

by Keith Bowman from interactive investor |

Revenues are outpacing costs, with a first-half loss expected to be less than last year’s.

First-quarter trading to 31 December 2019

  • Expects to deliver a first-half headline loss before tax better than H1 2019
  • Revenue up 9.9%
  • Passenger numbers up 2.8% to 22.2 million
  • Revenue per seat up 8.8% - cost per seat excluding fuel up 4.3%

Chief executive Johan Lundgren said:

"I'm pleased that we have made a strong start to the year with continued positive momentum.  The improvement in our revenue per seat has been driven by our self-help revenue initiatives combined with robust customer demand and a lower capacity growth market.

"Cost per seat is in line with expectations, helped by our Operational Resilience programme which has not only improved overall customer satisfaction in the quarter but also enabled us to manage our costs.  

"easyJet holidays launched successfully with customers looking to benefit from our unrivalled flexibility, great value and handpicked hotels.   

"Being an industry leader in sustainability is important to us, and since our announcement in November we have offset the carbon emissions from the fuel used for all our flights. This means nine million customers have flown net-zero carbon flights with us and our offsetting programme has been received very positively by customers, staff and other stakeholders.

"We, of course, recognise offsetting is only an interim measure and we continue to work on reducing our carbon footprint in the short term, coupled with long-term work to support the development of new technology, including hybrid and electric planes, to reinvent aviation for the long-term."

ii round-up:

Launched in 1995 and floated on the London Stock Exchange in 2000, today short-haul European airline easyJet (LSE:EZJ) flies over 90 million passengers annually. 

It operates a fleet of Airbus aircraft and employs over 10,000 people including nearly 3,000 pilots. 

Its five key priorities are to be number one or number two in primary airports, winning customer loyalty, offering value by efficiency, employing the right people and innovating with data. 

For a round-up of this latest trading update, please click here.

ii view:

Many factors outside of management’s control, such as the weather, fuel costs and strikes can hinder financial performance. Company action to try and mitigate such factors is a feature across the industry. 

Aided by self-help initiatives, robust customer demand and low levels of competitor capacity, revenue growth has outpaced cost inflation during the quarter. Management expects to deliver a first-half headline loss before tax better than reported in the first half of 2019. 

The launch of a holiday business also offers opportunity. Around 20 million customers per year fly with easyJet to Europe's largest leisure destinations, but only 0.5 million book accommodation with it.

For investors, and despite a reduction in the dividend payment, an estimated forward yield of over 3% (not guaranteed) still offers attraction in the current ultra-low interest rate environment. But with the one-year forward price/earnings (PE) ratio currently above both the three and 10-year averages, the shares may be up with events.

Positives: 

  • Record passenger numbers during 2019
  • Upgrading its aircraft fleet is expected to deliver a cost per seat saving of up to 20%
  • In 2017 it became the largest short haul operator in the Berlin market

Negatives:

  • Many factors outside of management’s control can impact performance
  • Despite group preparations, Brexit provides uncertainty
  • Climate change requirements could see fuel taxes introduced/increased

The average rating of stock market analysts:

Hold

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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