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easyJet - performance better than expected

easyJet's performance was better than expected in the first quarter. This included a 36% increase in revenue per passenger seat (RPS)...

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easyJet's performance was better than expected in the first quarter. This included a 36% increase in revenue per passenger seat (RPS), reflecting fuller planes and higher ticket yields. There was also a 20% increase in ancilleray revenues (things like extra legroom and food), with these now making up £406m of the group's £1.5bn quarterly revenue.

easyJet flew 20.2 million seats, in line with guidance. Passenger numbers in the quarter rose to 17.5m (Q1 FY22: 11.9m).

Higher fuel costs and adverse changes in exchange rates meant costs were 48% higher than the same time last year. easyJet reported an operating loss before tax of £122m - a 37% improvement on last year.

Looking ahead the group expects loss before tax to be "significantly" better than last year at the half year and to beat market expectations.

easyJet shares rose 9.5% following the announcement.

View the latest easyjet share price and how to deal

Our View

easyJet's engines are well and truly firing. After years of disrupted travel, holiday makers have come back in force. Not only are ticket yields higher, but planes that do take off are pretty full. That means the important measure of revenue-per-passsenger seat (RPS) has taken off. Overall, trading is better than expected and the group's expected to claw itself out of loss-making territory very soon 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.

A focus on short-haul travel puts easyJet in a better position than its long-haul rivals too, when it comes to capturing returning passengers who are looking for a quick jaunt to the sun or slopes, rather than a business trip to New York.

There are things to consider. Fuel costs and unhelpful changes in exchange rates are making profit growth a chellenge. 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.

Dividends aren't a priority just yet. Some analysts are predicting a return in the current financial year, hence the 1.47% 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: 25th January 2023