Fly high with easyJet

While the shares do not stand out as particularly cheap compared with those of peers, the stock's attraction is to be found in easyJet's robust business model and growth potential. This is reflected in the fact that the budget airline has not retracted its growth projections like many of its competitors did last month. This, coupled with the fact that easyJet shares are trading at a 12 per cent discount to their two-year average PE ratio and inside the lowest quartile of ratings recorded over that period, suggests the current share price offers an attractive entry point for new investors.

The airline sector is in a state of flux. Rival group Ryanair (RYA) has issued two profit warnings in the last year, while Irish competitor Aer Lingus (AERL) is suffering at the hands of poor industrial relations with staff. The latest casualty is travel firm Dart (DTG), owner of budget airline Jet2, which last month warned 2015 operating profits would not meet expectations: Dart's share price plummeted 26 per cent.

Meanwhile, several carriers are pushing back or cancelling future aircraft orders in a bid to pinch pennies. For example, Airbus (AIR) suffered a major setback earlier in June after Emirates Airlines, the fast-growing Gulf carrier, cancelled a $16bn order for 70 new A350 passenger jets.

But easyJet has arguably emerged the leader of budget airlines, despite being only the fifth largest carrier in Europe by passenger numbers. It made significant changes to its product offering in the last year or so, such as allocated seating and better focus on business travellers - strategies its competitors are now trying their best to replicate. But unlike its rivals, easyJet has not fallen foul of pricing pressure or insurmountable costs. It also seems unfazed by the recent hike in the oil price following the latest violence in Iraq and Ukraine.

Additional slots at London Gatwick airport were picked up from rival group Flybe (FLYB) last year, and will help easyJet capitalise on its aggressive capacity plans. A 7 per cent increase in European short-haul routes is pencilled in for the coming year. Interestingly, the airline is less concerned about the so-called weak demand in Europe, which its competitors are quick to blame for this year's profit squeeze.

Analysts think easyJet's strong cash flow will prompt payment of another special dividend early next year, which is reflected in the forecasts used in the accompanying table. The group already returned £308m to shareholders following a strong financial performance in 2013. This amounted to 77.6p a share when coupled with the ordinary dividend.

Admittedly, easyJet's days as the market dominator are not guaranteed. There's been a pick-up in competition from carriers such as Vueling and Norwegian Air Shuttle, and despite Ryanair's poor outlook, its shares are still a favourite among City analysts. But it is easyJet's controlled growth programme, and resilient performance in the past which prompt us to be bullish on the shares. It still holds a competitive cost advantage over legacy carriers and has maintained a lean cost base in recent years.