Shares in EasyJet (EZJ) jumped 5% to £15.22 after the budget airline surprised the market by beating revenue expectations.
Helped by the collapse of Thomas Cook, EasyJet has lifted its revenue per seat in the first half of the year was now expected to increase by ‘mid to high single digits’, which was an upgrade on its previous expectation of a rise of ‘low to mid-single digits’.
In a first quarter update covering the three months to 31 December, total group revenue jumped 9.9% to £1.4bn. Passenger revenue increased 9.7% to £1.1bn while ancillary revenue rose 10.8% to £301m.
Increases in ancillary revenue, encompassing extras such as checked bags, seat preferences, are particularly important for airlines because the income from such extras is stable, unlike passenger fares which can be volatile.
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As a result of the improved revenue guidance and ability to keep costs within expectations, the airline also anticipates its first half pre-tax loss to be lower than the £275m pre-tax loss it made in the same period last year.
It comes after rival Ryanair (RYA) upgraded its full year earnings forecast to over €1bn after a ‘stronger than expected’ number of bookings in the Christmas and New Year period.
EasyJet said it was helped in its first quarter by ‘low levels of competitor capacity’. Thomas Cook’s demise and the decision by Norwegian Air to reduce its number of short-haul routes has led to a reduction in options for passengers on some routes across Europe.
'REASONS TO BE POSITIVE'
AJ Bell investment director Russ Mould said, ‘With signs the government might be considering changes to the application of Air Passenger Duty, which could boost EasyJet’s UK operation, there are reasons to be positive for the company.
‘Yet cost inflation remains a concern, driven up by increased wages for staff, as well as industrial action and ownership costs associated with the delivery of new aircraft.
‘Longer term, and despite an apparent commitment to sustainability, the company faces the challenge of people potentially flying less as climate change awareness increases.’
EasyJet’s recently launched package holidays division EasyJet holidays, much maligned by the airline’s rivals, also appears to have performed well in the quarter.
While there was little detail in the company’s update, the airline said its package holidays arm is expected to at least break even for the financial year ending 30 September 2020.