ii view: easyJet stays on course

Low-cost airline easyJet displays operational resilience, and investors are getting onboard.

Third-quarter trading update

• Revenue up 11.4% to £1.76 billion
• Passenger numbers up 8% to 26.4 million
• Total revenue per seat up 0.7% at constant currency
• Headline cost per seat excluding fuel at constant currency fell 4%

Chief executive Johan Lundgren said:

"Quarterly performance was robust and despite the tougher macroeconomic conditions was in line with expectations. Revenue increased by over 11%. Our customers experienced significantly reduced cancellations and long delays largely as a result of our investment in operational resilience, which also contributed significantly to driving down cost per seat ex fuel at constant currency by 4%."

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 80 million passengers annually. It operates over 300 Airbus aircraft, 70% of which are owned and the balance leased. Among its key priorities is to be number one or two in primary airports.

For a round-up of the third-quarter trading statement, please click here.

ii view:

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

Oversupply or excess capacity in several of its markets continues to make for a highly competitive environment. easyJet's founding low-cost business model has arguably given it first-mover advantage, with some rivals having already failed and others potentially not surviving longer term. But this industry is highly cyclical, and an economic downturn remains a threat.

Geopolitical tensions and their impact on the oil price are an overhang, too. Brexit, despite management preparations, and broader European economic sentiment, also cast a shadow. For investors, a forecast dividend yield of over 4% and covered nearly twice by earnings, we believe, should help compensate for likely required patience. 

Positives: 

• Trading still in line with expectations
• Upgrading aircraft fleet could cut cost per seat by 20%
• Became largest short haul operator in Berlin market in 2017

Negatives:

• Profit expected to fall this year
• Lots of factors outside its control
• Despite group preparations, Brexit creates uncertainty

The average rating of stock market analysts:

Strong hold