The easyJet (LSE:EZJ) share price fell 5% in early trading today (22 January), despite issuing a positive trading update for the first quarter (three months ended 31 December) of its 2025 financial year.
Getting into the detail
The reaction was surprising to me given that passenger numbers were up 7% compared to the same period in 2023. This translated into a 11% increase in revenue. And largely due to lower jet fuel prices, operating costs per kilometre flown fell 4%.
Historically, the airline makes a loss in Q1. However, this narrowed by £65m, to £61m. Encouragingly, the company also said that “current booking trends are supportive” of it meeting analysts expectations for FY25.
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After an hour or so of trading, the share price recovered a little. However, it was still lower and suggested that investors were unimpressed by the update. Perhaps they didn’t like the hint – and I wouldn’t put it any stronger than that – of softer revenues.
The press release said: “Q2 underlying unit revenue trends are modestly lower than Q1 due to our capacity investment on longer leisure flows.”
Maybe some thought it was time to bank their profits. The airline’s share price has increased 23% since its 52-week low of August 2024. However, in my opinion, I think there’s plenty to be cheerful about.
A helicopter view
That’s because I believe wider industry trends will help the airline. The International Air Transport Association expects 4bn more flights by 2043, with an anticipated annual growth rate of 2.3% in Europe.
And if Donald Trump carries through on his promise to “drill, baby, drill”, world oil prices will start to fall. This can only be good news for easyJet. During its first quarter, fuel costs accounted for 24.5% of group revenue.
Closer to home, there could also be some positive developments for the industry. If recent reports are to be believed, the government looks set to approve additional runways at Heathrow and Gatwick and give the green light to expansion at Luton. This could be significant for easyJet as it has bases at the latter two.
Despite environmental concerns, increasing airport capacity is seen by many economists as an effective way of stimulating growth. And if the UK economy could grow like easyJet’s done over the past 30 years, I don’t think there’d be many complaints.
Founded in 1995, it started with two aircraft flying from Luton to Glasgow and Edinburgh. Today, it has nearly 350 of them. And it has medium-term ambitions to grow its profit before tax to over £1bn — the current FY25 consensus forecast is £709m.
But there are risks. The aircraft industry’s notoriously difficult and faces numerous financial, operational and environmental challenges. The pandemic illustrated how vulnerable the sector can be.
However, from what I can see, easyJet looks to be in good shape. I believe it’s well placed to benefit from the expected increase in demand for air travel. And it recently reinstated its dividend which — although modest — is an indication its directors have confidence in the future direction of the business.
For these reasons, I’m going to keep an eye on the company and revisit the investment case when I’m next in a position to buy some shares.
