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EasyJet Share Price Takes Off After Reduced Competition Facilitates Fare Hike

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While the backdrop of surging oil prices may not be welcomed by airlines, EasyJet’s share price received a further boost today after the company reported a strong set of results yesterday. A rise of 3.2% so far today takes total gains to almost 40% since last September’s lows.

At 1718 pence a share, the company’s all-time high of 1915 pence set in 2015 is now on the horizon. If the forward guidance provided yesterday, that full year profits could see 40% growth on last year, turns out to be the case, there is a reasonable chance a new record high could be achieved.

EasyJet’s revenues vary significantly between the October to March period and April to September.

The first six-month period traditionally results in a loss for the airline and the second profit. 2016/17 saw a £212 million loss recorded over the six months up until the end of March. A series of terrorist incidents around the time dulled appetite for travel further over what is always the slower half of the year. That loss was reduced to 18 million over 2017/18 and would have been a profit of £8 million were it not for costs associated with the company’s takeover of failed rival Air Berlin. EasyJet expects a jump in year-to-September profits from last year’s £408 million to between £530 and £580 million.

Expected profits have been fueled by the decision to bump average fares up by an average of 12% in the wake of rivals Monarch Airlines, Alitalia and Air Berlin going out of business. The easing level of competition in the cutthroat air travel market meant that was possible. Average revenue per passenger, however, grew an impressive 20%, 8% up on the fares hike. Increased sales of food and beverages, in-flight shopping revenues and add-ons all contributed. Overall passenger numbers also grew by 3 million compared to the previous period.

EasyJet chief executive John Lundgren further intimated that the airline is planning the launch of a holiday brand to fill the space vacated by Monarch Airlines. In summary of the results reported Lundgren explained to investors:

“Our performance was helped by the reductions in capacity from other airlines but was also driven by the strength of the Easyjet brand which is now the most considered airline brand in the UK, moving ahead of BA for the first time.”

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Paul

The author Paul