EasyJet vs Ryanair: Which shares could have made you richer?

We ex­plore EasyJet and Ryanair’s lat­est trad­ing as they pur­sue dif­fer­ent growth strate­gies

Shares - - CONTENTS -

Low-cost air­line EasyJet (EZJ) has sur­prised the mar­ket by de­liv­er­ing a pre-tax profit of £8m over the tra­di­tion­ally loss-mak­ing win­ter pe­riod and re­vealed an in­ter­est­ing new growth strat­egy.

The air­line sec­tor is em­broiled in a price war that con­trib­uted to the demise of ri­vals Monarch and Air Ber­lin last year, while ris­ing oil prices have in­creased fuel costs.

EasyJet’s up­beat half year re­sults in May paint a stark pic­ture com­pared to fierce ri­val Ryanair (RYA), which warned in­vestors a se­ries of head­winds and higher costs will im­pact earn­ings.

The con­flict­ing out­look be­tween EasyJet and Ryanair begs the ques­tion – which would an in­vestor have made more money from and is EasyJet’s strong trad­ing ex­pected to con­tinue?

Since EasyJet floated on the stock mar­ket in Novem­ber 2000, it has re­warded in­vestors gen­er­ously with a 716% to­tal re­turn.

Over the same pe­riod, Ryanair has de­liv­ered a more mod­est but still im­pres­sive 599% to­tal re­turn.

In the six months to 31 March, EasyJet re­vealed a record num­ber of pas­sen­gers at 37 mil­lion and strong an­cil­lary sales helped drive rev­enue 19.5% higher to £2.18bn.

The air­line has also been able to more ef­fi­ciently fill its flights as its load fac­tor rose from 90.2% to 91.1% over the same pe­riod.

TAR­GET­ING THE THRIFTY AND LOYAL

Un­der a new strat­egy, EasyJet will in­crease its in­vest­ment in EasyJet Hol­i­days to tap a greater share of the mar­ket and plans to in­tro­duce a loy­alty pro­gramme to en­cour­age cus­tomers to fly again.

EasyJet Hol­i­days aims to make it eas­ier for its cus­tomers to book a pack­age hol­i­day with­out break­ing the bank and will be led by the newly ap­pointed Garry Wil­son.

EasyJet will be able to take ad­van­tage of its well-known brand

Cus­tomer loy­alty is im­por­tant for EasyJet as 46% of cus­tomers only fly with the air­line once a year – and re­turn­ing cus­tomers tend to book twice as many flights.

By bring­ing in a new loy­alty scheme, EasyJet hopes to drive pas­sen­ger and an­cil­lary sales by us­ing more data and in­vest­ing in tech­nol­ogy to im­prove its of­fer­ing and cut costs.

AJ Bell in­vest­ment direc­tor Russ Mould is in­trigued by the new strat­egy but warns the hol­i­day mar­ket it is a com­pet­i­tive space to break into.

De­spite this reser­va­tion, Mould be­lieves EasyJet will be able to take ad­van­tage of its well-known brand.

‘Get­ting them to add ac­com­mo­da­tion in the same trans­ac­tion could be an easy win for the group as long as the price is right,’ com­ments Mould.

Ryanair is focusing on grow­ing its air­craft to nearly 600 in an at­tempt to hit 200m pas­sen­gers per year by 2024.

UP­BEAT GUID­ANCE

In the year to 30 Septem­ber 2018, EasyJet fore­casts a head­line pre-tax profit of be­tween £530m to £580m ex­clud­ing the im­pact of a head­line loss from in­te­grat­ing its new base at Ger­man Air­port Tegel, this was ahead of pre­vi­ous con­sen­sus ex­pec­ta­tions of £505m.

Look­ing ahead, pre-tax profit is an­tic­i­pated to in­crease to £645.8m in 2019 and £660.5m in 2020.

Last year the pic­ture was rather less pos­i­tive as the com­pany was forced to cut its pro­posed div­i­dend by 24% to 40.9p amid lower ticket prices, cur­rency head­winds and higher costs hit prof­its.

The air­line has a div­i­dend pay­out ra­tio of 50% of head­line profit af­ter tax and ex­pects to de­liver div­i­dend growth in 2018.

WHY IS RYANAIR STRUG­GLING?

Like EasyJet, Ryanair strug­gled last year. It was hit by strike threats, wide­spread dis­rup­tion and flight can­cel­la­tions fol­low­ing pi­lot ros­ter­ing is­sues.

In or­der to ap­pease un­happy pi­lots, the budget air­line de­cided to boost pay and is plan­ning to in­vest an ad­di­tional €200m for higher pay and to at­tract new tal­ent.

Fur­ther costs of more than €400m are ex­pected as oil prices con­tinue to rise, re­sult­ing in Ryanair is­su­ing a profit range guid­ance of €1.25bn to €1.45bn in the year to 31 March 2019. At the lower end this falls short of an­a­lyst con­sen­sus of €1.37bn.

Pre-tax profit is fore­cast to hit €1.55bn in 2020 and jump fur­ther to €1.71bn, ac­cord­ing to Reuters data.

WHAT DO THE AN­A­LYSTS THINK?

Bro­ker Can­tor Fitzger­ald an­a­lyst Robin Byde ex­pects es­ti­mates for EasyJet to rise ‘by at least £50m’ on the back of the strong half year re­sults.

Byde says the is­sue for in­vestors is how much of the good news is priced in the stock as the shares have ral­lied 14.4% to £17.18 (24 May) since the start of 2018.

De­spite Ryanair’s lower guid­ance, Canac­cord Ge­nu­ity’s Gert Zon­n­eveld is con­fi­dent it has much to of­fer go­ing for­ward with its sus­tain­able unit costs ad­van­tage, su­pe­rior mar­gins and long-term growth prospects.

While fares are ex­pected to be broadly flat this year for Ryanair amid high Euro­pean ca­pac­ity growth, bro­ker Nu­mis says in­dus­try consolidation could pro­vide a cat­a­lyst. (LMJ)

Newspapers in English

Newspapers from UK

© PressReader. All rights reserved.