Interactive Investor

Why easyJet is unstoppable under new CEO

23rd January 2018 12:28

Graeme Evans from interactive investor

The tailwinds supporting easyJet and its new chief executive remain in place after another strong first-quarter update today powered the airline's shares to their highest level since the beginning of 2016.

The performance confirms that Johan Lundgren is still very much in his honeymoon period as new boss, having seen shares surge 16% in the 54 days since he took over the helm from Carolyn McCall.

There are plenty of factors working in his and easyJet's favour at the moment, such as the recent collapses of Monarch, Air Berlin and Alitalia, through to the impact of Ryanair's winter flight cancellations due to labour issues.

 All of this has combined to take capacity out of the market and enabled easyJet to increase passenger numbers by 8% to 18.8 million in the quarter to the end of December.

Revenues for the period jumped 14% to £1.14 billion, which reflects a 6.6% rise in revenue per seat, a strong increase in in-flight and ancillary sales and the benefit of foreign exchange movements.

In addition, easyJet's On Time Performance is continuing to improve with 81% of flights arriving within 15 minutes during the quarter, despite the impact of French air traffic control industrial action and severe weather in December.

The company is now guiding for revenue per seat to increase by mid to high single digits across the first half of its financial year, although Easter timing comparisons with a year earlier will negatively impact Q3.

UBS has a Buy rating on the airline, although its price target of 1,660p is almost up with events after a 6% share price rise today. Analyst Jarrod Castle's valuation is based on a projected 2018 EV/EBITDA multiple of 8.5 times.

Other brokers have also turned more positive on the airline in recent weeks, with Morgan Stanley last week upping its price target to 1,725p from 1,490p.

Panmure Gordon also removed its Sell rating and increased its target for 2019 profits by 20%, believing that the recent acquisition of Air Berlin operations at Tegel airport had the potential to add £50 million in profits.

The acquisition, which completed on December 15, has resulted in easyJet entering into leases for up to 25 A320 aircraft and offering employment to up to 1,000 former Air Berlin crew members.

EasyJet still expects to incur headline losses of around £60 million on its activities at Tegel in the 2018 financial year.

But the airline pledged to have a full summer schedule at Berlin Tegel, as part of plans to grow group-wide full-year passenger numbers from 80 million to around 90 million.

It is also expanding its 'Worldwide by easyJet' to around half of its network so customers can connect to long-haul services. Its fleet will increase to over 300 aircraft by spring, including through the delivery of its first A321neo aircraft.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.