easyJet outlook intact after smooth 2018 take off

The recovery of easyJet’s position as a tough-to-assail No.2 in Europe’s airline market stayed aloft in the first quarter. Shares jumped on news of a smooth transition for acquired operations at Berlin’s Tegel airport, total quarterly revenue exceeding forecasts as well as costs and revenue per seat remaining on track with prior guidance. A forecast headline loss at Berlin Tegel is also held at the same level as previous guidance. That says execution risks from the daunting prospect of reviving a bankrupt airline have been greatly reduced. Consequently, risks to group profit for the year can also be pegged lower.

A lack of unforeseen nasties of a financial or operational kind helps account for the ‘relief-rally’ feel of the market reaction on Tuesday. There was a modestly flattering foreign exchange tailwind that helped lift revenues 14.4% and above forecasts to £1,140m. But even if excluded, turnover remains solid relative to expectations. To be sure, easyJet has not reported any standout positive surprises in the quarter either. Rather, its share price acceleration at the time of writing reflects understanding among investors that little is guaranteed from quarter-to-quarter in the budget airline space.

Looking ahead, the new CEO has backed away, for the moment, from addressing bottom-line guidance for the new financial year. Still, comparing the log of easyJet’s first quarter of 2017 to the most recent one underlines improvement from the evaporation of stated angst. The lack of that quality in Tuesday’s report reveals management’s better orientation to the near future. No mention this time around of a “tough” pricing environment stoked by rampant capacity growth that even overwhelmed lower fuel prices than today’s. These conditions still exist. What’s changed is that easyJet is no longer experiencing the sharpest end of them.

Under these conditions and with the end-2017 cash position at £357m as pledged, perhaps easyJet can avoid a widely expected dip back into negative cash flow again by end-2018. (Note 2018/19 capex will almost double to £1.2bn). That outcome could mean a faster-than-forecast dividend increase this year is not out of the question, even if it is at the further bound of probabilities.

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