Sign up United Kingdom
Proactive Investors - Run By Investors For Investors

Analysts welcome record EasyJet results but are cautious for the long-term

Concerns on margin pressures and upcoming results from competitors will likely lead to a review of the airline's prospects once the high of today's results wears off
Easyjet aircraft
EasyJet reports revenues of over £2bn in its interim results today

City analysts have reacted positively to the latest results from FTSE 100-airline operator EasyJet PLC (LON:EZJ), but some have remained sceptical on the long-term outlook for the group.

Nicholas Hyett, equity analyst at Hargreaves Lansdown, said: “Lower competitor capacity and continuing investment in new routes has sent revenues soaring in the first half. It’s a welcome change from recent years when brutal competition forced the industry to cut prices, eventually driving several smaller players out of the market. easyJet has taken advantage of its rivals’ misfortune to pick up some attractive routes and continues to grow its fleet. If price pressure continues to ease, that should be good news for the top line.

READ: EasyJet boasts ‘excellent performance’ in interims as revenue passes £2bn

However, he was cautious on the outlook for the group, given “stubbornly high” non-fuel costs, adding that it was currently being “masked by revenue growth”.

He added: “While more lower margin passengers might boost profitability in the short run, it won’t make for a robust business if times turn tough. Whether planes are full and flying, or empty and grounded, leases and loans must be repaid, and lower margins mean even a small downturn in customer numbers could seriously dent profits."

Higher oil prices, which are currently hovering around US$79 a barrel, are also likely to become a headache for the airline going forward, as fuel costs creep upwards.

Elsewhere, Russ Mould, investment director at AJ Bell, chimed more positively on the results: “A bumper first half set of results and various new initiatives like a loyalty scheme and investment to properly develop a holiday business would suggest a new lease of life for low-cost airline easyJet. Passenger numbers have gone up, it is making money from each person flying and costs are only increasing by a small amount. Furthermore, forward bookings are ahead of last year.

He added: “Admittedly some of the recent performance was helped by reduced capacity from other airlines, but EasyJet is clearly doing something right to be pushing up the important performance metrics. It’s the simplest things that sometimes work and a loyalty scheme certainly could be easy to roll out and help improve customer stickiness. EasyJet has the advantage of a well-known brand and, given that travellers already have strong trust in the business for the flying side, getting them to add accommodation in the same transaction could be an easy win for the group as long as the price is right.”

Prospects likely to be reviewed after competitors' report

Analysts are also likely to inspect EasyJet’s prospects again when competitors Ryanair Holdings PLC (LON:RYA) and Wizz Air Holdings PLC (LON:WIZZ) release their full-year results next week.

Analysts at Liberum commented that despite concerns around Ryanair’s recognition of unions for its pilots and flight crews, “its margins and returns on capital remain significantly superior, with free cash flow generation supporting share buybacks. In contrast, easyJet is facing a ramp up in capex and a squeeze on free cash generation.”

They added: “Management’s guidance implies a material uplift to consensus earnings, but in our view this is already at least partially priced in. We believe the market is focussing excessively on short-term earnings momentum rather than fundamentals, and that easyJet's challenges are not reflected in its rating.”

Non-budget competitor and British Airways owner International Airlines Group PLC (LON:IAG) will also be eyed after its first quarter results for 2018 saw operating profit before exceptional items rise 75% to €280mln compared to the same period last year.

View full EZJ profile View Profile

easyJet plc Timeline

Related Articles

ZoomAway Travel Inc embracing blockchain, which is set to push out middle man in hospitality and act
January 11 2018
The firm plans to begin rolling out cryptocurrency payments into its white label and registration management system (RMS) clients
Oil pollution
July 02 2018
A name change might be in order if PCG pulls the trigger on two investments it is mulling
Amusement park
February 14 2018
Berenberg's analysts pointed out that accesso's end-to-end technology stack combined with its global footprint positions the group well in a market that is fragmented by product, geography and vertical

No investment advice

The Company is a publisher. You understand and agree that no content published on the Site constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable or advisable for any specific person. You further understand that none of the information providers or their affiliates will advise you personally concerning the nature, potential, advisability, value or suitability of any particular security, portfolio of securities, transaction, investment strategy, or other matter.

You understand that the Site may contain opinions from time to time with regard to securities mentioned in other products, including company related products, and that those opinions may be different from those obtained by using another product related to the Company. You understand and agree that contributors may write about securities in which they or their firms have a position, and that they may trade such securities for their own account. In cases where the position is held at the time of publication and such position is known to the Company, appropriate disclosure is made. However, you understand and agree that at the time of any transaction that you make, one or more contributors may have a position in the securities written about. You understand that price and other data is supplied by sources believed to be reliable, that the calculations herein are made using such data, and that neither such data nor such calculations are guaranteed by these sources, the Company, the information providers or any other person or entity, and may not be complete or accurate.

From time to time, reference may be made in our marketing materials to prior articles and opinions we have published. These references may be selective, may reference only a portion of an article or recommendation, and are likely not to be current. As markets change continuously, previously published information and data may not be current and should not be relied upon.

© Proactive Investors 2018

Proactive Investors Limited, trading as “Proactiveinvestors United Kingdom”, is Authorised and regulated by the Financial Conduct Authority.
Registered in England with Company Registration number 05639690. Group VAT registration number 872070825 FCA Registration number 559082. You can contact us here.

Market Indices, Commodities and Regulatory News Headlines copyright © Morningstar. Data delayed 15 minutes unless otherwise indicated. Terms of use