easyJet’s first-half revenue rose 12% to £4.0bn. All business areas saw double-digit growth, with the Holidays segment rising at the fastest pace, up 30%. Increased airline revenue was helped by capacity growth and fuller planes.
Underlying pre-tax losses widened by 40% to £552mn, in line with recently lowered guidance. The decline was driven by higher operating costs and ongoing strategic investments.
Free cash flow fell from a £306mn inflow to a £74mn outflow. The net cash position improved by 33% to £434mn.
Second-half bookings are tracking two percentage points below the prior year.
No full-year profit guidance was given due to the uncertainty over fuel prices and demand. Markets are expecting full-year underlying pre-tax profits to decline by around 78% to £145mn.
The shares were broadly flat in early trading.
Our view
easyJet’s first-half losses landed in line with recently downgraded guidance. Looking ahead, sky-high fuel prices are weighing on both costs and demand, leading the group to reduce some flight frequencies and raise minimum ticket prices. However, the near-term profit outlook remains challenging.
easyJet’s been doing most things right of late. The no-frills airline is upgrading its fleet to newer, more efficient planes, stimulating demand, and setting up new strategic hubs in popular locations like Milan and Rome. On average, more of its available seats have been getting filled too.
Selling extras to existing passengers is also a key part of the game plan. So-called ancillary revenues are things like extra baggage, legroom and food. This is a highly lucrative area, and recent growth has been impressive.
The package holiday arm continues to deliver strong growth. Revenue has been growing at high double-digit rates and pre-tax profits have hit targets ahead of schedule, accounting for more than a third of the group’s total last year. Given that the addressable market for package holidays is huge, there’s a big growth opportunity ahead for this segment if it can keep nailing delivery.
The package holiday arm provides a valuable hedge in tough times. It’s an asset-light segment – easyJet doesn’t own the hotels or resorts it delivers passengers to. So if demand falls, easyJet’s variable costs fall by almost the full amount too.
Then there’s the big issue – fuel. easyJet operates with single-digit margins and historically spends around 25% of its revenue on fuel. That makes it one of the more sensitive European airlines to fuel price fluctuations, and the recent spike in fuel prices is taking a big toll on profitability. Even if the Middle East conflict is resolved in the near term, fuel prices are likely to remain high for some time. As a result, we expect this year's and next year’s profits to come in well below 2025 levels.
This comes at an inconvenient time. easyJet is in the middle of upgrading its fleet – an expensive endeavour. Granted, the balance sheet is currently one of the strongest in the sector. But with free cash flows now forecast to turn negative for the next few years, debts look set to stack up. While this is manageable, it means dividends and share buybacks will likely take a hit.
While easyJet’s been operating well across multiple fronts, the benefits to the bottom line are being overshadowed by higher fuel prices and a more unfavourable macroeconomic backdrop. The asset-light Holidays business offers some resilience, but with the group’s financials set to weaken, we see limited scope for upside in the near term.
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, easyJet’s overall ESG reporting falls short of best practice.
easyJet key facts
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This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
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