London Gatwick Expansion And Fleet Renewal Will Drive Long Term Upside Potential

Catalysts

About Jet2

Jet2 is a leading U.K. leisure travel group, combining an award-winning airline with a high-margin package holiday tour operator.

What are the underlying business or industry changes driving this perspective?

• Expansion into London Gatwick, the U.K.'s largest underserved package holiday catchment, is expected to structurally lift volumes and mix toward higher value packages over time. This would support sustained revenue growth and earnings acceleration once the base matures.
• Rapid fleet renewal into larger, more efficient A321neo aircraft increases seats per flight while cutting unit fuel, carbon and noise costs. This creates durable cost per seat advantages that can expand operating margins even in a competitive pricing environment.
• Growing penetration of data and AI-driven systems across revenue management, marketing technology and automated retail operations enhances pricing precision and ancillary attach rates. This underpins higher yields per passenger and structurally improves net margins.
• Deepening loyalty via myJet2, richer personalization and a fast-expanding, high-quality hotel portfolio strengthens repeat behavior and lifetime value. This lowers acquisition costs and supports a more predictable, higher quality revenue and earnings base.
• A strong balance sheet, substantial free cash generation and a disciplined leverage framework allow Jet2 to self-fund its aircraft pipeline and new bases while continuing buybacks and dividends. This can amplify earnings per share growth relative to underlying profit growth.

Assumptions

This narrative explores a more optimistic perspective on Jet2 compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming Jet2's revenue will grow by 9.4% annually over the next 3 years.
• The bullish analysts assume that profit margins will shrink from 6.1% today to 4.8% in 3 years time.
• The bullish analysts expect earnings to reach £467.2 million (and earnings per share of £2.4) by about December 2028, up from £454.1 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as £378.6 million.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 10.9x on those 2028 earnings, up from 6.0x today. This future PE is greater than the current PE for the GB Airlines industry at 6.6x.
• The bullish analysts expect the number of shares outstanding to decline by 6.94% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.34%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The growth strategy relies on sustained capacity expansion at Gatwick and other new bases. If slot allocation, dual-runway timing or airport cost inflation at Gatwick prove less favorable than planned, Jet2 could face structurally lower load factors and weaker pricing power, which would pressure revenue and operating margins over the long term.
• Jet2 is committing to a large, multi-year Airbus A321neo fleet pipeline and average capital expenditure of about GBP 950 million between FY 2027 and FY 2030. Any downturn in leisure travel demand, higher interest rates, tighter aircraft financing or delays in achieving targeted cost per seat savings could leave the business overcapitalized with underutilized assets, dampening returns on capital employed and earnings growth.
• Customer booking trends are already skewing later and more price sensitive, and flight-only demand has required promotional discounting with average ticket prices down 7%. If consumer budgets remain under pressure due to taxes, inflation or weaker macro conditions, Jet2 may have to discount more deeply across both products, eroding yields, net margins and ultimately earnings per share.
• Hotel accommodation costs, landing and handling charges, staff wages, sustainable aviation fuel mandates and regulatory fees such as EUROCONTROL are all rising faster than underlying operating costs. If Jet2 is unable to keep passing these increases through to package holiday and flight-only prices, structural cost inflation could compress operating profit margins and constrain free cash flow generation.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for Jet2 is £23.5, which represents up to two standard deviations above the consensus price target of £18.94. This valuation is based on what can be assumed as the expectations of Jet2's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £23.5, and the most bearish reporting a price target of just £14.5.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be £9.7 billion, earnings will come to £467.2 million, and it would be trading on a PE ratio of 10.9x, assuming you use a discount rate of 10.3%.
  
• Given the current share price of £13.62, the analyst price target of £23.5 is 42.0% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.