Low-cost airline EasyJet (EZJ) is proving its ability to navigate unexpected events as a £15m hit from drone disruption at Gatwick airport in December, which prompted over 400 cancelled flights, has not impacted its overall profit expectations.
It says headline pre-tax profit expectations are ‘broadly’ in line at £580m in the year to 30 September 2019 thanks to the airline selling more tickets albeit at lower prices.
First quarter sales at EasyJet rose 13.7% to approximately £1.3bn thanks to a combination of higher capacity and more passengers travelling with the airline. But revenue per seat fell 4.2% as the price war among airlines continued.
Investors will be relieved there is no profit warning unlike several other airlines around the world this year including Ryanair (RYA), plus there is no hike in forecast costs per seat, helping the shares rally 6% to £12.27.
However, the market should be wary of the airline’s use of ‘broadly’ as this could signal trouble on the horizon if any setbacks occur.
‘Broadly’ is a term often used by companies to say they are essentially hitting earnings guidance but not precisely on target.
It means there is no room for error in the current trading period and some investors even consider the use of the term to be a company laying the groundwork for a potential earnings warning in the future.
We recently flagged EasyJet as an undervalued stock as it has delivered strong trading despite strike disruption and downward pressure on fares.
ROBUST BOOKINGS DESPITE BREXIT UNCERTAINTY
EasyJet says bookings are holding up despite uncertainty surrounding the UK’s fast-approaching exit from the EU at the end of March.
It says flights should continue between the UK and EU even in the event of a no-deal Brexit.
Cantor Fitzgerald argues the European short-haul market is expected to be weaker in 2019 and fuel costs could be higher although slower market capacity growth should offer some relief for yields.
The broker says budget carriers such as EasyJet have traditionally outperformed in a weaker earnings backdrop.