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Jet2 blames 'woefully ill-prepared' airports

The airline has issued bonds to prepare it for the coming economic headwinds
Jet2 blames 'woefully ill-prepared' airports
  • Balance sheet strengthened
  • No dividend declared 

Budget airline operator Jet2 (JET2) is brutally honest in its end-of-year results. Management took a shot at the “woefully ill-prepared and poorly resourced” airports and admits that the group performance will only recover to its pre-pandemic levels when the aviation industry returns to stability.

On top of this, the airline also expects that the worsening UK economic outlook and inflationary pressures will squeeze its customers and put its prices under pressure. The hope is that the budget nature of its product will help shield it from the worst of these effects. When people have less money they usually go for the cheaper option. That said, the cheapest option is to not fly anywhere at all.

Given all these issues, it’s no surprise the results led with the increase in its total cash balance which increased 62 per cent to £2.23bn (including £1.18bn of money market deposits) . Part of this cash was generated by a £387mn bond issuance that matures in 2026 and a £150mn term loan maturing in 2023. When borrowings and lease liabilities are subtracted it leaves the company with £658mn net cash.   

This is around double the £324mn group operating loss which was basically flat from last year. The good news is that 35 per cent of the passenger booking for 2022 are new customers, which suggests holiday goers might be looking for cheaper options. If they have a good experience they maybe converted for life.

With mounting headwinds, the lowly forward PE of eight is justified – the market isn't expecting a rapid turnaround. Any expectation that the relatively strong balance sheet will help Jet2 outlast its competitors and then pick up more market share in 2024 is probably rooted in hope rather than expectation, so we stick with Hold.

Last IC View: Hold, 1,303p, 20 Nov 2020

JET2 (JET2)    
ORD PRICE:784pMARKET VALUE:£1,683m
TOUCH:782p - 784p12-MONTH HIGH:1,434pLOW: 767p
DIVIDEND YIELD:nilPE RATIO:na
NET ASSET VALUE:418pNET DEBT:58%
Year to 31 MarTurnover (£bn)Pre-tax profit (£mn)Earnings per share (p)Dividend per share (p)
20182.413072.27.5
20193.017191.910.2
20203.615375.03.0
20210.4-370-167nil
20221.2-389-147nil
% change+212---
Ex-div:-   
Payment:-