easyJet shares soar after landing record profits

easyJet (LON: EZJ) shares have risen by 43% year-to-date, but this overall performance masks a more volatile reality. The FTSE 250 airline stock started the year out at 330p, increased to 515p by late January and then fell to as low as 360p during October.

Shares were changing hands for 405p during pre-market trading on results day — 28 November — and have since shot up to 470p. And investors might be hoping that a Santa rally could see a return to the year’s high of 528p.

easyJet share price: full-year results

easyJet enjoyed a record H2 2023 financial performance and maintains a ‘positive outlook’ for FY 2024. Despite the challenging external macroeconomic environment, the airline saw FY23 headline profit before tax of £455 million — a £633 million year-on-year improvement and in line with prior guidance.

And most encouragingly, easyJet holidays soared by a whopping 221%, delivering £122 million in profit before tax. Total revenue increased by 42% to £8.17 billion, predominantly due to pricing power, increased capacity, improved load factors and the aforementioned growth of easyJet holidays.

Capacity rose by 14% year-on-year to 92.6 million seats, with passenger numbers up by 19% to 82.8 million people. However, headline costs also rose by 30% to £7.72 billion, driven by increased volumes, higher fuel costs and generic inflationary pressures.

But the FTSE 250 company remains financially resilient — with £41 million in net cash and £4.7 billion in liquidity. And the company also holds resilient BBB/Baa3 credit ratings.

Accordingly, easyJet remains on track to restart dividends, with 4.5p per share — or £34 million — to be paid out in early 2024. And it even expects this payout to ‘increase to 20% of headline PAT on FY24's result’ with the ‘potential to increase level of future returns to be assessed over the coming years.’

CEO Johan Lundgren enthuses that the ‘record summer performance demonstrates the success of our strategy and that demand for easyJet remains strong…we see a positive outlook for this year with airline and holidays bookings both ahead year on year and recent consumer research highlights that around three quarters of Britons plan to spend more on their holidays versus last year with travel continuing to be the top priority for household discretionary spending.’

Where next for easyJet shares?

The FTSE 250’s medium-term targets is to achieve a group profit before tax per seat of between £7 and £10 — by reducing winter losses, growing easyJet holidays to £250 million of profit before tax and through cost savings from its Airbus order book that could deliver fleet efficiency and upguaging (an industry term for increasing capacity by adding seats or replacing smaller planes with larger ones).

The ambition is to deliver more than £1 billion of profit before tax.

Lundgren remains ‘confident about the future and the opportunity ahead, focusing on capital discipline and driving our low cost model to achieve our ambitious medium term targets’ — and on the earnings call made clear he feels that strong travel demand will continue into next summer. Encouragingly, the airline has hedged 76% of its jet fuel requirements for H1 2024.

Financially, the company remains ‘on track’ to deliver growth of circa 9% in FY24. The current financial year has started positively, with early bookings ahead in Q2 compared to last year — but the airline is being impacted by reduced or even paused flights to various countries in the middle east, meaning it doesn’t expect its Q1 loss to improve year-on-year.

Longer-term, easyJet has a balancing act to conduct. It’s promising significant fleet expansion and upgrading, alongside dividends — in a time where oil remains elevated and may continue to stay high. This may be difficult to pull off in an increasingly tight monetary environment.

But the FTSE 250 stock remains far below its pre-pandemic price point, and long-term investors may see further gains through FY24.