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easyJet is flying high

The company will report its first-half numbers on Tuesday 12 May, and the target is set sky-high. 

easyJet plane
Source: Bloomberg

easyJet had a record profit in 2014 as better customer service levels and low fuel cost came together at the perfect time. For many years the company’s customer relations were well ahead of its main rival Ryanair, but the after the Irish air carrier did a major overhaul of its customer relations, easyJet was forced to go even further with customer satisfaction. Not only has the customer benefited from the company’s new and improved image, but easyJet saw full-year profits rise 21.5% to £581 million — a record high.

Repeat business is becoming a big portion of the easyJet model. Existing client reservations increased by 57% last year to 37 million — a 50% rise in the past four years — and business customers rose by 62% over the same period. Competition in the airline industry is heating up as low-cost carriers like easyJet have started targeting a profile of business customers, whereas higher-end airlines like IAG are capturing more of the no-frills sectors through its Spanish subsidiary Vueling.

The collapse in the price of oil has been beneficial to the airline, and easyJet hopes to save between £22 million-£70 million in fuel this financial year, but adverse currency movements could cost the company £20 million.

When easyJet reveals its numbers for the first six months of the year, the market is expecting revenue of £1.79 billion and adjusted net loss of £2 million. The airline will reveal its full-year numbers in November, and the market is expecting revenue of $4.7 billion and adjusted net income of £522 million, and these forecasts represent a 4.4% drop in revenue and a 16% rise in net adjusted income.

Equity analysts are very bullish on the airline. Out of the 28 recommendations, 21 are buys, four are holds, and three are sells. The average target price is £19.69, which is nearly 10% above the current price. Investment banks are equally bullish on Ryanair and out of the 28 ratings, 22 are buys, three are holds, and three are sells. The average target price is £11.91, which is 9% above the current price.

The share price is in a strong upward trend, and any pullback will provide buying opportunities. The £17.50 area will provide support and £18 is the initial target. Then traders will look to £19, and beyond that the record high of £19.27 will be in sight. If the £17.50 region is punctured the next level of support will be £17, and below that the £16.50 area should stem any selloffs. 

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