Everybody loves a high-flyer, especially one that can execute a pretty nifty turnaround. Budget airline easyJet (LSE: EZJ) has scored on both counts in recent months, with its share price hitting a 52-week high of 1444p in recent days, and the dividend climbing nicely, too.
The airline industry has been hit hard by sterling volatility and terror attacks but easyJet has recovered well and its share price is up 36% over the last six months. However, it hit a pocket of turbulence today, its stock falling 5% following publication of its interim management statement for the three months to 30 June.
easyJet reported a 10.8% rise in the number of passengers carried to 22.3m, driven by a 9.5% increase in capacity to 24m seats and load factor up by 1.1 percentage points to 93.1%. Total revenue per seat increased by 2.2% at constant currency, ahead of guidance, and increased by 5.9% on a reported basis to £57.78 per seat.
Quarterly revenues increased 16% to £1.39bn, boosted by Easter falling in April this year. The group also hailed ongoing enhancements to its customer proposition and other revenue initiatives, which helped stimulate bookings and build revenue momentum.
The low-cost carrier may be taking more passengers, up around 2 million on the same period last year, but the devil is buried in the detail, or rather the Outlook section of today’s report. This states that with around 67% of expected Q4 bookings secured, revenue per seat for the six months to 30 September 2017 is expected to decline by around 2% at constant currency.
Fear of flying
This casts a small cloud over sunny claims by chief executive Carolyn McCall, who will start as ITV’s new chief executive in January, that “easyJet has delivered a strong performance in the quarter right across the business”. The consumer squeeze, the falling pound, and Brexit remain a major concern, although cheap oil will help, while the firm’s planned Vienna base may ease Brexit fears.
However, investors should expect further turbulence, with City analysts forecasting a 17% drop in full-year earnings per share (EPS) in 2017, pushing up the forecast valuation to 17.4 times earnings. The easyJet share price is up 157% over five years, but if you thought that was good, take a look at International Consolidated Airlines (LSE: IAG), which has soared a mighty 285% over the same period.
It has even flown through June’s IT meltdown, which stranded tens of thousands of passengers, and this month’s two-week strike over a new cabin crew contract. In June IAG, whose brands include British Airways, Iberia, Aer Lingus and Spanish budget airline Vueling, posted a year-on-year 3.9% rise in airline traffic, as measured in revenue passenger kilometres. Group capacity climbed 3.5%.
Forecast EPS growth looks steady at 1% in 2017 but more promising in 2018, at 7%. By then, the stock should yield 4.1%, with strong cover of 3.6 times. Although the airline industry remains a risky sector, IAG scores with strong growth from Aer Lingus and Iberia, and rising dividends. It looks like a buy… if you have a head for heights.
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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes