Today I’m taking a closer look at two low-cost airlines easyJet (LSE: EZJ) and Ryanair (LSE: RYA). easyJet announced its half-year results this morning, and Ryanair revealed higher passenger numbers last week, so which of these budget airlines should you be buying?

Third quarter warning

Shares in budget airline easyJet were trading higher this morning after the company released its report for the six months ended 31 March. The airline reported a loss for the period on negative currency movements, and also warned that its third quarter performance could be impacted by the effects of the Brussels terrorist attacks.

The Luton-based carrier reported a £24m pre-tax loss, compared to a £7m profit a year earlier, with revenues up marginally from £1.76bn to £1.77bn. Passenger numbers increased to 31m from 28.9m, with load factor stable at 89.9%, and revenue-per-seat down 6.6% to £51.29. The airline remarked on a good start to the year for UK beach traffic, and also said passenger numbers and revenue had been helped by its biggest ever ski season.

However, it warned Q3 revenue-per-seat would drop by around 7% as a result of the Brussels terrorist attacks and Easter falling earlier this year. But easyJet has demonstrated excellent growth over the last few years, and this looks set to continue, albeit at a slower rate, with analysts expecting a 4% rise in earnings for the full year to September 2016, followed by an even better 15% rise next year.

The shares are trading on 10-times forecast earnings for this year, falling to just nine for the year ending September 2017. The company is offering excellent dividend income with prospective yields of 4.1% and 5% for this year and next. In my opinion easyJet shares are undervalued, and have excellent growth potential. Furthermore, income seekers should be particularly happy with the chunky dividend payouts.

Passenger numbers surge

Last week, Ryanair released its traffic statistics for April showing a healthy 10% increase in passenger numbers to 9.9m compared to 9m in April 2015. Rolling annual traffic to April grew 17% to 107.4m customers, while the load factor rose 2% to 93%. Full-year results to the end of March are due later this month, but the market consensus is already predicting a healthy 50% increase in earnings, with a further 20% this year, and another 17% pencilled in for fiscal 2018.

Normally this kind of growth comes at a premium, but Ryanair is trading on a fairly modest 13-times forecast earnings for the year just ended, falling to 11 for this year, and just 10 for 2018. I foresee plenty of scope for capital growth, but dividends are scarce with prospective yields of less than 1%.

The verdict

I see plenty of upside potential for both easyJet and Ryanair given the very low P/E ratings and healthy growth prospects. Both airlines should be very appealing to those looking for value and growth, but easyJet offers superior dividends for income investors, and on that basis gets my vote.

What next?

If you're still looking to make life-changing sums of money from shares, then you'll want to know about this FREE Guide from the experts at The Motley Fool UK, who've released their 10-Step Guide To Making A Million In The Market.

To get your instant copy of this 100% FREE Exclusive Guide, simply Click HERE.

Don't miss out, Get Your Guide To Making A Million In The Market HERE.

Bilaal Mohamed has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.