2023-04-19 13:57:41 ET
Summary
- easyJet plc expects to beat consensus profit estimates for FY 2023.
- Capacity expansion drove down unit costs excluding fuel.
- Fuel prices are elevated, but easyJet plc's revenue growth per seat has been outpacing cost growth.
In January, I marked easyJet plc ([[ESYJY]], [[EJTTF]]) shares a buy. Admittedly, that call has not been a great one so far. easyJet stock gained 1.3%, but the global markets showed a 3.5% return over the same period. I would like my Buy ratings not only to show positive returns but also to show market outperforming returns, and that was not the case here.
easyJet recently provided a trading update on H1 2023 performance, which I will analyze in this report.
easyJet Expects To Beat Consensus Profit
Let's start by looking at the initial guidance for FY2023. easyJet guided for a capacity of 38 million seats in H1 2023, providing a 25% YoY increase, while the H2 2023 capacity of 56 million seats provides a 9% increase over the comparable period last year. For Q1, revenue per seat was guided to be up more than 20% with a load factor improvement of 10 percentage points. For Q1, the revenue per seat or RPS was up 36% while load factors did indeed increase by 10 percentage points with a capacity of 20.2 million seats flown compared to 15.5 million seats in Q1 2022.
For H1 2023, easyJet flew 37.9 million seats, achieving its 25% growth forecast for the first half of the financial year while second quarter revenue per seat showed further strengthening with a 43% year-over-year increase. For H1 2023, the company is guiding for an EBITDAR loss in the £80 to £60 million range after incurring redelivery costs for 15 airplanes in Q1 2023. A positive is that costs per seat declined by 19% despite 71% higher fuel costs per seat. The 43% higher revenue per seat do not only reflect cost absorption but also yield expansion, which is something that in previous quarters was lacking. As a result, the company expects to exceed the £260 million profit consensus for 2023.
For Q3, the airline sees continued strength, with revenue per seat increasing another 20% YoY - and that is compared to a base that was already improving last year, while capacity is expected to increase 7%. The holiday segment is expected to grow another 60%.
So, with the summer in sight, easyJet is seeing strong demand and pricing, and even though fuel prices are up, the company sees demand strength that translates to higher revenue per seat, allowing for yield expansion.
Conclusion: easyJet Is Getting Back On Track
In November, I wasn't too charmed by easyJet's pricing and cost elements and marked the stock a hold. Perhaps I was a bit too negative back then, but that was also driven by problems for easyJet on Gatwick and Schiphol Airport and some softness in air fares that the airline saw. My buy rating from January has not yet paid off, but overall despite higher fuel prices I do believe that easyJet is positioned attractively with a low net debt of £200 compared to £1.1 billion at the start of the year.
So, we see strong revenue per seat, lower cost per seat as capacity is expanding, and low net debt as easyJet plc heads into the summer season. On the 18th of May, easyJet will provide its H1 2023 results, so that is when we will see the final results, but the trading update shows a promising path for the low-cost carrier.
For further details see:
easyJet: Guides For Above-Consensus Profit