These are tough times for the travel industry, with Thomas Cook and WOW Air both going bust last year, and Flybe only surviving thanks to government intervention.
FTSE 100 carrier easyJet (LSE: EZJ) has a more positive story to tell today, climbing almost 5% after reporting a “strong start to full-year 2020 with continued positive momentum”. The easyJet share price has been climbing strongly for six months now, up a third since I tipped it in July.
Total group revenue for the quarter to 31 December 2019 increased 9.9% to £1.43bn, while passenger revenue rose 9.7% to £1.12bn. Ancillary revenue, the money budget airlines generate from extras such as bags and allocated seating, rose 10.8% to £301m.
The £6bn group reported “robust customer demand and low levels of competitor capacity”, which allowed it to upgrade its first-half revenue guidance and ancillary revenue per seat.
Cost per seat excluding fuel increased a 4.3% at constant currency, due to factors including better crew pay and French air traffic controller strikes, which drove 813 cancellations in December. EasyJet will still make a first-half headline loss before tax, but this will be lower than 2019’s £275m figure.
This was a welcome set of figures, boosted by the failure of rival Thomas Cook, as easyJet snapped up its slots at London Gatwick and launched its own package holidays businesses to plug the gap in the market. While it is too early to say whether its package operation will fly, it appears to be off to a solid start.
EasyJet was given further help by the grounding of Boeing 737 Max aircraft and Norwegian Airlines backing out of the short-haul market.
This is a tough industry to operate in, as so many key factors are beyond management control, such as fuel prices, French unions, drone disruption, terror attacks, and the overall direction of the global economy.
Climate change is a growing worry and easyJet has responded by offsetting all carbon emissions from flight fuel since November. It is also working to reduce its carbon footprint in the short-term, with hybrid and electric planes one potential solution. However, this remains a long-term threat to the health of the aviation industry.
It needs to keep costs down
A further increase in the airline’s costs would also worry investors, and management will want to keep an eye on that as it focuses on cost-cutting initiatives such as its Operational Resilience programme.
Despite those issues, the easyJet share price trades at 14.8 times earnings, making it a bargain compared to the FTSE 100 average of 18.33 times. Its yield of 3.3% is below the index average of 4.34%, but this remains an attractive income stock with the payout covered twice by earnings.
After five bumpy years, earnings look to be on a solid flightpath, with City analysts forecasting 12% growth in the year to 30 September 2020, and 14% the year after.
The airline industry has been enjoying an upgrade. I’d invest £500 in easyJet for further growth and income.
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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 us better investors.