easyJet's first quarter revenue rose 22% to £1.8bn. That reflects double digit increases in passenger and ancillary (additional extras like legroom seats) revenue, as well as a near-doubling of revenue in the smaller easyJet Holidays business. There was a 5% improvement in pre-tax losses to £126mn.
Passenger numbers increased from 17.5mn to 19.8mn, and easyJet operated almost 3mn more seats than the same period last year.
The group expects losses in the second half to improve compared to last year, despite a £40mn impact from flight disruptions from the Middle East conflict. Summer bookings are also "building well".
The shares rose 3.7% following the announcement.
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Our view
easyJet impressed the market with its first quarter results. Disruption from the Middle East conflict is something that will need monitoring, but it's outside of easyJet's control and for now the impacts look to be stable.
Zooming out, it's not just that travel is being prioritised by consumers. That's a rising tide that lifts all ships. There are some easyJet-specific elements to the success story. The group is particularly successful at selling extras to existing passengers. So-called ancillary revenues are things like extra baggage, legroom and food. This is a growing, and highly lucrative area, and the growth has been impressive. easyJet is also targeting a higher share of sunseeker's budgets through its holidays division. We're impressed with the step change in profitability here and see potential for more growth.
easyJet's ability to sell these add-ons and encourage strong demand stems from its route strategy. It focuses on profitable Western European routes within major airports. It's also invested heavily in bolstering its presence at these major airports and improving its routes. It's an approach that sets easyJet apart from other low-cost carriers - who trim costs by flying in and out of smaller, less convenient airports.
Plans to buy close to another 160 aircraft in the coming decade is also a way the group's trying to future-proof its best-in-class route strategy. This more aggressive approach increases risk if demand were to take a sharp knock backwards, so we'd like more information on how it's being funded. But overall, we're supportive of the move to put the order in now. And there's still enough financial bandwidth to support the recent reinstatement of the dividends. These should increase in 2024 if all goes to plan, but as always, shareholder returns aren't guaranteed.
It's also worth considering that the cost-of-living crisis is still very much alive and kicking. While easyJet doesn't seem to be suffering from this at present, if the economic backdrop is worse than expected this year, then we could see a reduction in the number of bookings.
The final thing to consider is escalating geopolitical tension, which is weighing on bookings to some destinations. This hasn't dented investor sentiment, but as with any situation like this, that can change at short notice.
We think easyJet is well-placed within its sector and comes with growth opportunities. There are some risks, especially in the short term, so be prepared for ups and downs.
An independent Non-Executive director of Hargreaves Lansdown plc is also an Independent Non-Executive Director of easyJet plc.
easyJet key facts
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