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easyJet - profits soar but outlook uncertain

easyJet's saw revenue rise 34% in the third quarter to £2.4bn, reflecting strong increases across passenger revenue and ancillary revenue.

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easyJet saw revenue rise 34% in the third quarter to £2.4bn, reflecting strong increases across passenger revenue and ancillary revenue, partly reflecting a 7% increase in passengers. The group also benefitted from planes being fuller on average, with load factor reaching 90%. Capacity increased 5%, with easyJet flying 26.2m seats in the period.

There was a reported pre-tax profit of £203m, compared to a loss of £114m at the same time last year.

The group expects capacity to fly around 29m seats in the final quarter, and is looking to deliver another record profit. But warned of the "unprecedented" disruption facing the industry from strikes, which could affect performance.

The shares fell 2.4% following the announcement.

View the latest easyjet share price and how to deal

Our view

easyJet has seen record summer profits as the travel boom continues to gain altitude. 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, easyJet has left lossmaking territory.

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.

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.

Wider industry strikes have the potential to cause havoc across the system too, and the extent of this won't be known just yet. The broader implications of sweeping cancellations or changes will dent profit momentum in a big way if the issues are too prolonged. 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 2.9% prospective yield. 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: 20th July 2023