EasyJet profits soar but share price remains grounded despite record holiday growth

easyJet has announced a significant upswing in profits, with the latest results revealing that the airline’s holiday division now accounts for nearly 40 per cent of group profits. The budget carrier’s holiday arm met its ambitious profit target of £250 million ahead of schedule, reflecting a year on year expansion of almost one third. This development marks a decisive shift in the airline’s strategy, following the collapse of Thomas Cook and Monarch, as easyJet intensifies its efforts to combine flight seats with hotel bookings.

Kenton Jarvis, the new chief executive, has placed a strong emphasis on driving growth in this sector with the goal of increasing annual holiday profits to £450 million by 2030. The group is aiming for overall profits to reach £1 billion a year, a level not previously achieved in its history. For the year ending in September, easyJet’s group profits rose 9 per cent to £665 million, while the airline’s package holiday customers rose 20 per cent to nearly 3.1 million, generating a 27 per cent increase in holiday revenue.

This change in focus has not been universally welcomed by investors. After reaching a four year high of 587p per share in spring, easyJet’s share price fell by up to 25 per cent during the summer, partly due to an outlook revision that tempered profit expectations. Recent hopes regarding global stability briefly rallied the stock before it decreased again to 473p per share. The group’s latest results also reveal that while the holiday business posted strong growth, airline profits dipped by £5 million to £420 million, despite revenues rising to £8.6 billion. Jarvis has identified the elimination of heavy winter losses as a strategic priority for the group, noting that almost all profits are generated in summer while winter periods still account for an aggregate loss of £108 million.

The number of passengers carried by easyJet over the year increased to 93.4 million, yet this remains just short of pre pandemic levels. Passenger revenues climbed 6 per cent as consumers absorbed higher fares. A 4.5 per cent increase in the average holiday package price accompanied the rise in demand, with the typical booking now just under £700. A substantial outlay of £365 million was made to Bookingcom in commission, with the remaining £250 million profit representing a 13 per cent margin, one point higher than the previous year.

easyJet has responded to these robust earnings by raising its annual dividend to £100 million, representing one fifth of group after tax profits and equivalent to 13.2p per share. This corresponds to a yield of nearly 2.8 per cent at current share prices. However, the surge in profits has failed to boost the company’s market value, which fluctuates between £3.5 billion and £4 billion, below pre pandemic levels. The principal cause is the increased number of shares in circulation following two discounted rights issues and share placings during the pandemic, which raised £1.6 billion but led to dilution of existing holdings.

While competitors such as Ryanair and IAG have pursued share buybacks to support valuations, easyJet is prioritising the modernisation of its fleet using its net cash position of over £600 million. Investments are directed at renewing its 350 aircraft, including the replacement of 82 older planes. Given the inherent risks associated with the sector, fund managers continue to view easyJet as a less compelling option than its rivals, supported more by underlying strengths than by market optimism.