easyJet’s third-quarter revenue rose 11% to £2.6bn, largely fuelled by an 8% increase in passenger numbers to 23.5mn as seat capacity grew year-on-year. The package holiday business was also a big contributor, with 42% growth in the period.
Despite the increased capacity, planes were just as full on average, with the load factor remaining flat at 90%. Underlying operating profit moved 16% higher to £234mn. Profitability was helped by the top-line growth and a small decline in headline cost per seat. Net cash increased 50% to £456mn.
Bookings for the fourth quarter are now 69% sold, up 1 percentage point despite 7% more available seats for the peak season. CEO Johan Lundgren said the group remains “on track to deliver another record-breaking summer”.
The shares rose 9% following the announcement.
Our view
easyJet’s third-quarter numbers landed a little better than expected. That was a welcome relief to markets, as a weak performance from its rival Ryanair for the same three-month period had markets on edge.
Revenue increased at double-digit rates as more holidaymakers snapped up the group’s expanded capacity. That helped keep planes running at around 90% capacity on average.
Unlike Ryanair, easyJet has been able to keep revenue per passenger moving in the right direction, despite softness in airfares. That’s in no small part thanks to further success in 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 sunseekers’ budgets through its holidays division. We're impressed with the uplift in profitability here and see the 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. This approach sets easyJet apart from other low-cost carriers - who trim costs by flying in and out of smaller, less convenient airports.
The group has substantial financial bandwidth to support the reinstatement of the dividends too. These could increase this year if all goes to plan, but as always, shareholder returns aren't guaranteed.
The guidance for bookings and revenue per seat in the short term was slightly soft. We don’t think this is the beginning of a fully-fledged price war between the low-cost carriers and we remain positive about the company’s prospects, but it’s something to monitor. easyJet expects things to keep moving in the right direction at a similar pace to the prior quarter, while markets had been hoping for a slight acceleration.
Something to consider is escalating geopolitical tension, which has the potential to escalate and impact bookings. This hasn't dented investor sentiment, but as with any situation like this, that can change at short notice. And as we’ve already mentioned, there remains uncertainty about the short-term demand. But crucially, we don’t view this as a cliff-edge, but more of a potential for small downgrades.
We think easyJet is well-placed within its sector and comes with growth opportunities, that aren’t baked into the current valuation. 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.
Environmental, social and governance (ESG) risk
The transport industry is medium risk in terms of ESG, with European firms managing them better than others. Carbon emissions, product governance, and quality & safety are the biggest risk drivers. Other key areas are emissions, effluents & waste, labour relations, and employee health & safety.
According to Sustainalytics, easyJet’s management of ESG risk is strong.
Its policy addressing environmental issues is very strong and executive remuneration is explicitly linked to sustainability performance targets. An adequate whistleblower policy is also in place. However, easyJets’s overall ESG reporting falls short of best practice.
easyJet key facts
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