Low-cost carrier EasyJet [EZY] posted a Q1 trading statement on 21 January stating that due to “positive momentum” it decided to increase its H1 revenue per seat guidance. EasyJet’s share price spiked following the announcement to close up 4.6% for the day, boosting the airline’s share price gains for the year so far to 6.6%.
But EasyJet is not the only low-cost carrier to register success so far this year. Ryanair [RYA] – whose share price was down 0.25% following the EasyJet announcement – has enjoyed year-to-date (YTD) gains of 5.8%.
Meanwhile, fellow competitor to the low-cost carrier throne, Wizz Air [WIZZ], has seen its share price gain 8.4% since the start of the year, outpacing both of its sector peers.
As it stands, overspill from last year’s collapse of Thomas Cook as well as issues with Flybe and reports that Air France [AF] is suffering from pilot and cabin crew strikes could be having an impact on the companies’ share prices.
Taking it Easy
“The improvement in our revenue per seat has been driven by our self-help revenue initiatives combined with robust customer demand and a lower capacity growth market,” Easyjet CEO Johan Lundgren said in the trading update. The group reported an increase of 9.9% to £1.42bn in total revenue for the quarter ending 31 December.
“The improvement in our revenue per seat has been driven by our self-help revenue initiatives combined with robust customer demand and a lower capacity growth market” - Easyjet CEO Johan Lundgren
Passenger numbers, meanwhile, increased by 2.8% to 22 million, driving passenger revenue increased by 9.7% to £1.12bn and total revenue per seat increased by 8.8%, outperforming market expectations. This led the company to increase its guidance for revenue per seat in H1 “to increase by mid to high single digits – compared to previous expectations of ‘increase by low to mid single digits’”.
Despite some considerable mid-year volatility in 2019, EasyJet’s share price finished the year up 34% and after yesterday’s jump of 4.6%, it closed at a price of 1517p on 21 January. Its market cap stands at just over £6bn.
Ryanair has also started the year on a high. It has been in headlines recently after CEO Michael O’Leary threatened to sue the government over its state rescue of Flybe. O’Leary argues that the help extended to Flybe – which the BBC reports is thought relate to an outstanding air passenger duty payment of around £100m – should be extended to other airlines.
Ryanair’s huge market cap of $18.8bn has been driven by a strong early performance in 2020. The airline also reported a positive performance in its latest earnings announcement on 10 January, raising its full-year guidance for FY2020. Due to a stronger than expected Christmas period, it raised its full-year group traffic forecast from 153 million to 154 million. The airline also raised its guidance for profit after tax from €800m-€900m to between €950m-€1.5bn.
Ryanair’s share price has climbed 42% in the last 12 months and analysts at Hargreaves Lansdown think that it could go higher still. The analysts highlighted that the carrier has longevity, suggesting it may be able “outlast” smaller competitors.
“The shares traded on 3.3 times book value, prior to the profit upgrade, above the longer-term average of 2.9,” the analysts wrote in a January note. Compared to EasyJet, the shares of which are “valued pretty much in line with their longer-term average on a price-to-book basis”.
|PE ratio (TTM)||17.43||19.95||16.48|
|Return on Equity (TTM)||11.23%||15.02%||29.59%|
EasyJet, Ryanair & WizzAir share price vitals, Yahoo Finance, 22 January 2020
Meanwhile, Wizz Air has been the strongest performing of the three so far this year. The smallest of the three by market cap (£4.3bn), its share price has risen 8.4% in the first 21 days of January. Like counterpart Ryanair, its share price also suffered from EasyJet’s good news, falling 0.04%.
In November, Wizz Air gave an outlook for net profits in 2020 to be between €335m and €350m, slightly closing the gap from its previous estimate range of €320m and €350m. Over the past five years, the airline’s earnings have grown 15.7% per year, according to data from Simply Wall St, with its past year’s growth of 147.5% far exceeding the airline industry’s average of -9.8%. The publication also highlights that insiders have a huge €81m stake in the company.
Last week, Morgan Stanley cut EasyJet shares from equal weight to overweight, a move repeated for Wizz Air. The bank also adjusted its recommendation for Ryanair from underweight to equal weight. Its target prices for EasyJet and Wizz Air increased from 1,000p to 1,8000p and 3,700p to 4,900p respectively. It increased its target price for Wizz Air from €9 to €16.