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EasyJet shares rewarding patience, but fuel costs could provide headwinds

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Last month’s trading statement for easyJet provided a snapshot of what to expect from the airline this week, but now we have the finalised figures for easyJet’s full year 2023, what are the main takeaways for investors?

It’s true that some of these figures missed the mark. We learned from the trading statement that revenue per seat in the fourth quarter grew slightly slower than analysts had initially forecast, with annual profit before tax also falling short of expectations. However, there are still positives to take away from these results.

Record breaking headline profit

After a poor first half of the year, in which high operating costs resulted in a loss before tax of £411 million, easyJet [LON:EZJ] reported record breaking headline profit before tax in H2.

The group’s measured expansion at high-calibre airports has proved an especially shrewd move, as has the supercharged effort to push easyJet holidays. In a time when cost and convenience are the ultimate precursors to whether or not customers will splash on a trip, easyJet has been able to scoop up lots of existing demand in its net.

Investors are being rewarded for their patience following a bumpy few years with the reinstating of the dividend. The starting point means there’s plenty of room for growth, but will allow easyJet to dip its toe before diving in, which is the right move in such an uncertain environment.

A particularly bright spot for shareholders is the continued positive performance of easyJet holidays, which delivered an impressive annual pre-tax profit of £122 million, an increase of 221% year on year.

This strong second half to the year allowed easyJet to report its first annual profit since before the pandemic and, subsequently, the airline has announced plans to reinstate its dividend in 2024.

Jet fuel prices are the fly in the ointment for easyJet shares

“Whilst high inflation has kept operating costs elevated over the last couple of years, jet fuel prices in particular have been troublesome for airlines,” said Robert Rivero, a market analyst with investment group Admirals. “Fuel accounts for roughly 30% of an airline’s operating costs, so when prices are high, which they have been, it can be a serious impediment to profitability. ”

Fortunately, jet fuel prices have fallen significantly this year from the highs seen in 2022 and the latest data shows prices are currently 16% lower than the average price in 2022. But they remain at high levels historically and, despite prices falling throughout the financial year, easyJet fuel costs per seat rose 40%, an increase which was seemingly offset by a surge in demand.

After a successful summer for many airlines and travel companies, we now approach the winter months, when leisure travel typically tends to die down. However, easyJet reports that the year has begun well in October, and revenue per seat on early bookings made for Q2 – Q4 are ahead of last year.

“EasyJet is adamant that households will continue to prioritise travel in the new financial year,” said Sophie Lund-Yates, an analyst at Hargreaves Lansdown. “There are early indication’s that’s true, but that could change at short notice if the UK folds into recession. The conflict in the Middle East also has the potential to dent performance and will need monitoring closely. The good news for easyJet is that its problems are all outside of its control, which tells the market that its proposition is about as good as it can be- and is waiting to take-off once conditions allow.”

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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