RE: Stock Market F****cked12 Oct 2023 20:54
HL view.easyJet's post-pandemic recovery can be labelled mission complete. Profit engines are firing and bookings keep on coming.
That's given the group the confidence to re-enter the world of dividend payments. The payout ratio is much lower than pre-pandemic levels, but this could pave the way for shareholder returns to grow over time. Remember no share holders returned are guaranteed and yields are variable and not a reliable indicator of future income.
It's not just that travel is back on the agenda for easyJet's customers. That's a rising tide that lifts all ships. There are some easyJet specific elements to the success story. The group is particularly successful at selling extras to existing passengers. So-called ancillary revenues are things like extra baggage, legroom and food. This is a growing, and highly lucrative area, and the growth has been impressive.
easyJet's ability to sell these add-ons and encourage strong demand stems from its route strategy. It focuses on profitable Western European routes within major airports. It's also invested heavily in bolstering its presence at these major airports and improving its routes. It's an approach that sets easyJet apart from other low-cost carriers - who trim costs by flying in and out of smaller, less convenient airports. Plans to buy close to another 160 aircraft in the coming decade is also a way the group's trying to future proof its best-in-class route strategy. This more aggressive approach also increases risk if demand was to take a sharp knock backwards too, we'd also like more information on how it's being funded. But overall we're supportive of the move to put the order in now,
It's also worth considering that the cost-of-living crisis is still very much alive and kicking. While easyJet doesn't seem to be suffering from this at present, if the economic backdrop is worse than expected this year, then we could see a reduction in the number of bookings.
Wider industry strikes have the potential to cause havoc across the system too. The broader implications of sweeping cancellations or changes could dent profit momentum in a big way if issues in this arena rear their head again.
The final thing to consider is escalating geopolitical tension. This hasn't dented investor sentiment, but as with any situation like this, that can change at short notice.
We think easyJet is well-placed within its sector, and comes with growth opportunities. There are some risks, especially in the short-term, so be prepared for ups and downs