Airlines such as Flybe (LSE: FLYB) International Consolidated Airlns (LSE: IAG) and easyJet (LSE: EZJ) have a history of disappointing investors, but these companies have got their act together over the past few years.
Rising disposable incomes, more fuel-efficient planes and lower fuel costs have helped these companies power ahead. Indeed, since the end of 2011, IAG and easyJet have outperformed the wider FTSE 100 by a staggering 280% and 300% respectively.
And there could be further growth to come.
Maiden dividend
At the end of October, IAG reported a 39% jump in third-quarter profits today boosted by strong summer sales and the acquisition of Aer Lingus. What’s more, the company hiked its outlook for the full-year and announced that it is planning to make the first dividend payment in its four-year history.
IAG is now in a stronger position than it has been at any other point in its history. The group’s Spanish subsidiary Iberia is finally profitable after an extensive three-year restructuring programme and the recent acquisition of Aer Lingus will allow IAG to dominate the transatlantic market.
Based on current exchange rates IAG currently trades at a forward P/E of 12. City analysts expect the company’s earnings per share to grow by a third next year.
Making progress
The past five years have been challenging for Flybe, but the company now seems to be getting back on track.
Since 2011 Flybe has struggled to turn a profit; however, after an aggressive restructuring, the group revealed today that it had swung to a profit in the first half of its financial year as revenue and passenger numbers grew.
Flybe posted a pre-tax profit of £22.9m for the six months ended September 30, compared to a loss of £3.3m in the year-ago period. Revenue rose 10% to £339.6m. At the end of September Flybe’s cash balance amounted to £197.2m, slightly more than the group’s current market cap. of £192.4m.
City analysts expect the company to report a pre-tax profit of £3.9m for the year ending 31 March 2016 and earnings per share of 10.3p for the year after.
Dividend champion
easyJet’s growth over the past five years has been second to none, and the company is now rapidly becoming one of the market’s best income investments.
For example, since 2011 easyJet’s regular dividend payout has risen by more than 50%, and at present, the group supports a regular dividend yield of 2.6%. On top of this regular payout, the company has issued a special dividend every other year, returning any excess cash to investors.
All in all, since the beginning of 2011 easyJet has paid out 190p per share in dividends to investors, around 40% of the company’s 480p share price at the beginning of 2011. This year, the company’s regular dividend payout per share is expected to be 54.9p, giving the shares a yield of 3.1%, although this excludes any special payouts. Analysts expect the company to hike the regular payout by 10% next year to 60.3p for a yield of 3.4% — excluding any special payouts.
