Today’s first quarter update from easyJet (LSE: EZJ) shows that the company continues to make excellent progress. For example, it now expects to report a smaller first half loss in the current financial year than in the previous one, with it now being forecast to be between £10m and £30m, down from last year’s £53m.
This is very positive news, with airlines such as easyJet typically recording losses in winter as the majority of their sales are generated in the summer, and highlights the fact that the company is undoubtedly benefitting from lower fuel costs.
In addition, easyJet reported a rise in passenger numbers of 4.1% in the first quarter of the year, with capacity also being increased by 2.9% during the period. This helped it to increase its top line by 3.7% and, along with the aforementioned improved outlook, has caused easyJet’s shares to rise by 3.3% today.
An Improving Sector
Clearly, the fall in the oil price is benefitting all airlines, with IAG (LSE: IAG) and Thomas Cook (LSE: TCG) also likely to receive a boost from a lower cost base. And, looking ahead, all three airlines seem to have very bright futures and could make excellent share price gains moving forward.
A key reason for this is their upbeat forecasts. For example, easyJet is expected to increase its bottom line by 12% in the current year, and by a further 13% next year. That’s roughly twice the rate of growth of the wider market and, despite this, easyJet trades on a price to earnings (P/E) ratio of 16.1, which seems to equate to growth being on offer at a very reasonable price.
It’s a similar story with IAG and Thomas Cook. Clearly, in the short term, the potential for a deal with Aer Lingus may affect IAG’s share price performance but, looking further ahead, it is expected to post bottom line growth figures of 54% in the current year and 21% next year, despite having a P/E ratio of 18.3. Meanwhile, Thomas Cook is due to increase earnings by 17% in the current year and by 28% next year, with a P/E ratio of just 11.5 indicating that it is very attractively priced at the present time.
Looking Ahead
While a lower oil price is helping the airlines to grow their profitability, they are also set to benefit from an improvement in the macro outlook for the UK and Europe. With inflation being extremely low, interest rates being at historic lows, more quantitative easing to come and wage growth being well ahead of inflation for the first time since 2008 in the UK, the future for airlines looks very bright and, as such, I’m bullish on them moving forward.
