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easyJet - strong first half on demand rebound

easyJet's revenue rose 80% to £2.7bn in the first half.

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easyJet's revenue rose 80% to £2.7bn in the first half. This reflected a 25% increase in capacity and 41% improvement in passenger numbers to 33.1m. On average, planes were 87.5% full compared to 77.3% at the same time last year. easyJet has been able to increase its average ticket prices, which has also helped performance. easyJet's ancillary revenue, which includes extra items like legroom and food, was up 83% to £940m.

The ramp up in capacity, wider inflation and higher fuel costs meant costs were up 52%. As a result, there was a pre-tax loss of £415m, despite the higher revenue.

The group generated free cash flow of £531m, while net debt was £156m at the end of the period.

easyJet has said bookings for the rest of the year remain strong, with bookings for the third quarter at 73% of available capacity.

The shares rose 1.5% following the announcement.

View the latest easyjet share price and how to deal

Our view

easyJet's on the right route. First half results showed ticket pricing held up, demand was strong and crucially, capacity was there to greet it. At the same time, planes that have flown have been pretty full. That means the important measure of revenue-per-passenger seat (RPS) has taken off. Overall, trading was better than expected and the group's clawing itself out of loss-making territory as costs-per-seat fall.

It's not just that travel is back on the agenda for easyJet's customers. 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'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.

There are things to consider. Fuel costs and unhelpful changes in exchange rates are making profit growth a challenge. These aren't expected to derail things at the full year mark, but with the geopolitical situation still uncertain, we can't rule out further shocks to fuel prices.

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.

We've been impressed by easyJet's ability to ramp up capacity. Especially around recruitment. But we're mindful the risk of disruption can't be ruled out when operations have been dialed up quickly. That means we'll be keeping a close eye on Summer trends to make sure the group's successfully been able to service demand.

Dividends aren't a priority just yet. Some analysts are predicting a return in the current financial year, hence the 1.6% prospective yield. Current estimates suggest a dividend for the full year could be supported. But keep in mind this isn't guaranteed, and we think a return to paying dividends could take a bit longer.

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.

easyJet key facts

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

An independent Non-Executive director of Hargreaves Lansdown plc is also an Independent Non-Executive Director of easyJet plc.

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 Refinitiv. 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.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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Written by
Sophie Lund-Yates
Sophie Lund-Yates
Lead Equity Analyst

Sophie is a lead on our Equity Research team, providing research and regular articles on a selection of individual companies and wider sectors. Sophie's specialities are Retail, Fast Moving Consumer Goods (FMCG), Aerospace & Defence as well as a few of the big tech names including Facebook and Apple.

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Article history
Published: 18th May 2023