Jet2 airline-owner Dart (DTG:AIM) expects underlying pre-tax profit to ‘materially’ beat expectations in the year to 31 March 2018. Unsurprisingly such optimism is being jumped on by investors, triggering a 15.5% rally in the share price to a record 750p.
The leisure travel specialist is optimistic that it would no longer have to sell tickets at bargain prices. What the company calls a return to a ‘normalised pricing environment’ bodes well for company profits.
Last year was a difficult time for the airline sector as a vicious price war put pressure on the industry. Not all operators have been able to survive, with Monarch and Air Berlin throwing in the towel.
Yet this has allowed those with stronger businesses and balance sheets, including Dart, to take advantage, grabbing high value airport take-off and landing slots freed up to boost their own capacity.
With an apparent period of relative calm seemingly ahead, airline feel they can now start to push air fares modestly higher. Hence today's guidance upgrade by Dart, its second in the past few months.
DEBATE OVER PRICING OUTLOOK
That said, the company remains cautious on whether this trend in air fares can last.
Earlier this month, low-cost airline Ryanair (RYA) was pessimistic on higher fares, admitting pricing will remain under pressure and it may not be able to hike prices over the summer.
Dart is benefitting from strong trading in the leisure travel business and reports ‘satisfactory’ forward bookings over the summer.
Trading in 2019 is expected to be in line with this year’s, suggesting that fares pricing should improve, but any nasty surprises could impact performance.
EARNINGS UPGRADES
Stockbroker Canaccord Genuity analyst Gert Zonneveld has hiked earnings per share forecasts by 20% to 64.1p in 2017, 37% in 2018 to 61.8p and 34% in 2019 to 67.3p.
This is on the back of higher underlying pre-tax profit estimates, which have been increased by 20%, 37% and 35% respectively to £113.9m in 2017, £110m in 2018 and £119.7m the year after.
