I’ve never been much of a fan of investing in airlines, as they’re so dependent on uncontrollable costs (like fuel), offer no real differentiation, and are constantly fighting a pricing war. But it’s hard to argue against the success of some of our smaller ones in recent years.

Game changer

When we think of the budget aviation revolution in the UK, easyJet (LSE: EZJ) springs to mind as a pioneer under the helm of Sir Stelios Haji-Ioannou. And it is Sir Stelios we have to thank for keeping the company focused on returns, as without the shareholder revolution that he headed, the airline would probably have overstretched itself and destroyed value.

Over the past five years, easyJet shares have soared by 296%, to 1,493p today, though they’ve gone off the boil of late and have lost 21% since 2015’s high point in April. Forecasts for this year are modest, with just a 3% EPS rise on the cards, but a 16% earnings hike penciled in for 2017 would drop the P/E to 9.2.

That would be the lowest valuation the shares have been on since 2012, and since then we’ve seen the dividend multiplying threefold to a predicted yield of 4.5% this year, rising to 5.3% next. That makes easyJet shares look good value to me, as long as a Brexit vote doesn’t kill our budget airlines’ cheap access to European skies.

Not as cheap

Short-haul competitor Ryanair (LSE: RYA) has been less popular with a lot of travelers due to its penny-pinching approach to customer service, but it’s served shareholders pretty well — Ryanair shares are up 279% over five years, just a shade short of easyJet’s gain, to 1,492p.

Ryanair’s earnings growth has been similarly impressive too, but we’re not expecting to see any dividend cash before the year to March 2017, and then it’s only expected to yield 0.5%. Despite that, the shares are on a higher P/E than easyJet of 12 for 2017, and 10.5 based on 2017 forecasts.

I still think Ryanair shares are reasonably priced and we could be looking forward to a few more years of growth, but of the two it’s the least attractive to me.

Recovery prospect

But the one that could well turn out to be the best bargain right now is Flybe Group (LSE: FLYB), whose share price has headed in the opposite direction to the other two, dropping 60% since June 2014 to 57p. After years of losses, the company has been firmly set on a turnaround plan — and the shares have actually picked up 13% since the end of May, in anticipation of positive full-year results.

And on Thursday we got that, with EPS coming in slightly ahead of the City’s forecasts at 3.1p, compared to a loss of 16.5p last year. Revenue rose by 8.7%, and with per-seat costs down 4.2% we saw adjusted pre-tax profit of £5.5m. “This year was the second full year of our three-year transformation plan and our performance has been very encouraging“, said chief executive Saad Hammad, pointing out that this is Flybe’s first year of profit as a quoted company.

Analysts are forecasting two more years of very strong EPS growth, suggesting a P/E for March 2017 of only 6.2, dropping to 4.5 the following year. That looks cheap.

Will your profits soar too?

Sir Stelios isn't the only one who can make millions from investing. To find out how you can do it yourself, just get hold of a copy of The Motley Fool's 10 Steps To Making A Million In The Market report.

What you'll learn, more than anything, is that the secret to long-term financial success is to spend less than you earn, invest your savings in shares, and perhaps most importantly of all... keep a cool head when all around are losing theirs.

What's more, it won't cost you a single penny of your savings to get a copy, so just click here now for your completely free report!

Alan Oscroft 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.