Doubts surrounding easyJet’s (EZJ) ability to maintain its pricing power in a cut-throat competitive environment are fading after a strong set of final results. Revenue per seat rose 1.2 per cent - and nearly 2 per cent at constant currencies - to £63.31, even though the total number of European short-haul seats flown rose by 4.3 per cent. That allowed easyJet to post its fourth consecutive year of record pre-tax profits, up by more than fifth to £581m.
Investors in the budget carrier have had a turbulent summer. The share price hit an all-time high at the start of 2014, but fell by nearly 600p between April and July as concerns about growing capacity and industrial disputes gripped the sector. Lufthansa (GER:LHA) shares nose-dived after the old German flag-bearer cut its profit forecasts for both 2014 and 2015, while Irish carrier Aer Lingus (AERL) said cabin crew strikes could knock a fifth off operating profits. In July, easyJet confirmed the City's fears by admitting that prices were under pressure from growing capacity.
But it effectively retracted the profit warning in October, following a "strong finish to the summer season". Chief executive Carolyn McCall says the company's resilience can be attributed to "discipline", both on spending and capacity plans. Last year the group cut £32m in annual costs, and hopes to find another £30m-£40m of savings over the next five years.
EasyJet grew UK capacity by 5.8 per cent, taking over the Gatwick-based slots it bought from rival carrier Flybe (FLYB) in March. And the group upped capacity elsewhere too: easyJet capacity in France, Switzerland and Germany rose by 5 per cent, 6.8 per cent and 6.7 per cent respectively. Combined with firm pricing, slightly fuller planes and cost discipline - cost per seat fell 1.2 per cent excluding fuel - the capacity growth delivered a strong boost to profits.
Analysts at Cantor Fitzgerald expect pre-tax profits of £651m for the current financial year, giving EPS of 131p, up from £581m and 115p respectively.
| EASYJET (EZJ) | ||||
|---|---|---|---|---|
| ORD PRICE: | 1,541p | MARKET VALUE: | £ 6.12bn | |
| TOUCH: | 1,540-1,542p | 12-MONTH HIGH: | 1,853p | LOW: 1,207p |
| DIVIDEND YIELD: | 2.9% | PE RATIO: | 13 | |
| NET ASSET VALUE: | 547p* | NET DEBT: | 6% | |
| Year to 30 Sep | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2010 | 2.97 | 154 | 28.4 | nil |
| 2011 | 3.45 | 248 | 52.5 | 10.5 |
| 2012 | 3.85 | 317 | 62.5 | 21.5 |
| 2013 | 4.26 | 478 | 101 | 33.5 |
| 2014 | 4.53 | 581 | 115 | 45.4 |
| % change | +6 | +22 | +14 | +36 |
Ex-div: 26 Feb Payment: 20 Mar *Includes intangible assets of £478m, or 120p per share | ||||
