2019’s proved to be a brilliant year for the budget airline easyJet (LSE: EZJ) share price. But by contrast, it hasn’t been an easy year for much of the European aviation market.
Factoring in a combination of price wars among the low-cost carriers and higher fuel costs prompted a cluster of more casualties, the most high profile being 178 year-old Thomas Cook in the autumn.
But easyJet has been one of the leading beneficiaries of the thinned-out competition, its share price booming 28% since the turn of January. Indeed, the business has driven its tanks firmly onto the lawn previously occupied by Thomas Cook, launching its easyJet Holidays package holiday division late last month and snapping up the slots of its former rival at London Gatwick and Bristol airports too.
This development isn’t that much of a surprise given the size of the package trips sector (easyJet estimates the European market to be worth a colossal £61bn, with the UK at £13bn and growing at around 6% per annum). Just 2.5% of the airline’s customers who fly to major European destinations book accommodation as well, figures which illustrate the huge opportunity it has with its latest venture.
Price wars prompt profits turbulence
Passenger numbers also rose 8.6% in the fiscal year to September, to 96.1m, helped by the 10.3% boost to its fleet capacity over the period. It’s worth recalling too that the orange-liveried airline also gained from the strike action which grounded British Airways and Ryanair during the course of the year, as well as the failure of more of its competitors. As a consequence of these items, total revenues jumped 8.3% year on year to £6.4bn.
That said, it would be wrong to believe 2019 has been a complete bed of roses for easyJet. The impact of fighting a bloody war with its rivals like Ryanair over who can offer the cheapest tickets, allied with higher jet fuel prices, has played havoc with its bottom line more recently. In fiscal 2019, pre-tax tax profits slumped 26% year on year to £427m, a result so catastrophic that it prompted a 25%-plus cut in the full-year dividend to 43.9p per share.
On cloud nine
But these numbers wouldn’t be enough to put me off investing. The long-term profits outlook of easyJet is a sound one. Capacity increases, route-and-hub expansion and, more recently, that entry into the package holiday segment suggests plenty of opportunity.
No wonder City analysts expect earnings at the Footsie firm to grow 7% in the current fiscal year, one that leads to predictions that dividends will rise again too (a 47.6p per share reward is predicted by the number crunchers).
The threat of weak consumer spending remains for 2020, though I believe easyJet remains a top share to buy for the coming decade. And a low forward P/E ratio of 14.8 times and bulky 3.4% yield I think makes it a steal today.
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Royston Wild 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 us better investors.