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Investing.com – EasyJet (LON:)’s (LON:) strong third-quarter update sent its shares higher on Wednesday after it reported higher passenger numbers and a boom in holiday business.
Profits rise due to passenger growth:
EasyJet saw a healthy 16% year-on-year increase in profitability in the third quarter, to £236m in profit before tax (PBT). This translates into a £33m improvement compared to the same period last year.
This positive performance was largely due to increased passenger numbers, which rose by 8% year-on-year. This growth highlights the continued appeal of easyJet’s network and value proposition for travellers.
Revenues increase due to several factors:
EasyJet’s total revenue increased by 11% to £2.631 billion in the third quarter. This growth can be attributed to higher passenger numbers, which led to higher revenue from ticket sales. In addition, easyJet saw growth in ancillary revenue per seat, which includes additional charges for services such as checked baggage or seat selection. Finally, the strong performance of the holiday segment played a significant role in boosting overall revenue.
The holiday segment emerged as a bright spot for easyJet in the third quarter. Holidays profit before tax (PBT) rose 49% to £73m, driven by a 33% increase in passenger numbers.
Costs remain constant despite increasing segment length:
Although overall costs rose slightly in the third quarter, easyJet managed to keep expenses under control. Total seat costs excluding fuel increased slightly by 1%. This increase can be attributed to a shift in flight patterns, with easyJet offering a higher proportion of longer leisure routes in the third quarter.
The accompanying increase in average sector length slightly offset the positive impact of significantly lower disruption costs compared to the previous year.
Positive outlook for FY24 and beyond:
The company expects capacity to be around 100 million seats, indicating continued confidence in passenger demand. In addition, easyJet Holidays is expected to maintain its momentum, with net profit before tax expected to exceed £180 million, representing a 48% year-on-year increase.
Bookings for Q4 are also encouraging, with 69% already sold (up 1% year-on-year) despite a 7% increase in capacity. This translates into a significant increase of 1.5 million seats sold during the summer peak compared to last year.
However, analysts at RBC Capital Markets noted that other European airlines may offer more attractive valuations when looking at metrics such as the group’s ROCE (return on capital employed), ROIC (return on invested capital) and earnings per share compound annual growth rate (CAGR).
