Resilient Market Position Will Drive Recovery Despite Competitive Pressures

Key Takeaways

• Expansion into new UK bases, digital innovation, and fleet renewal are strengthening Jet2's market position and operational efficiency in an evolving travel sector.
  
• Prudent financial discipline, product diversification, and environmental focus enhance resilience, broaden market reach, and support sustainable, profitable growth.
  
• Expansion to new demographics, competitive pressures, UK dependency, rising costs, and supply chain disruptions threaten Jet2's margins, growth prospects, and financial stability.

Catalysts

Engages in the leisure travel business primarily in the United Kingdom.

• Continued expansion and investment in new bases (Liverpool, Bournemouth, Luton) are extending Jet2's reach across the UK, giving access to a larger customer base that is benefiting from growing disposable incomes and sustained demand for leisure travel, supporting long-term revenue growth.
  
• The company's ability to monetize digital consumer habits through a large and growing database (10.6 million customers, 7 million myJet2 members) and advanced AI-driven revenue management is positioned to capture higher customer lifetime value, increasing repeat bookings and enabling personalized marketing, thus boosting both revenue and margins.
  
• Ongoing fleet renewal, especially the large commitment to A321neo aircraft, is expected to materially lower per-seat fuel costs and carbon intensity, improving operating margins while positioning Jet2 as a leader in efficient, sustainable travel-a key differentiator as environmental regulation tightens.
  
• Robust cash generation, a conservative balance sheet, and prudent management of debt and liquidity provide the financial flexibility to compound shareholder returns via dividends and buybacks, while also insulating earnings from macroeconomic shocks.
  
• Product diversification-expanding both the range of destinations and holiday options and targeting younger and less affluent demographics without sacrificing quality-broadens Jet2's addressable market and should underpin stable, compounding revenue with risk-mitigating customer mix.

Jet2 Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Jet2's revenue will grow by 8.8% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 6.2% today to 5.5% in 3 years time.
• Analysts expect earnings to reach £507.9 million (and earnings per share of £2.54) by about September 2028, up from £446.8 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.4x on those 2028 earnings, up from 7.4x today. This future PE is greater than the current PE for the GB Airlines industry at 7.4x.
• Analysts expect the number of shares outstanding to grow by 1.12% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.02%, as per the Simply Wall St company report.

Jet2 Future Earnings Per Share Growth

Risks

• The company's focus on expanding its customer base to include younger and less affluent demographics may result in lower average revenue per customer and potential margin dilution, especially if increased volume does not fully offset a lower spend profile-risking pressure on net margins and long-term earnings growth.
  
• Ongoing high competition and sharper pricing in the UK flight-only market, combined with a shift towards later bookings, could make Jet2 vulnerable to price wars and excess capacity, leading to compressed ticket yields and increased revenue volatility.
  
• The company remains heavily UK-centric in both its customer base and operational footprint, making it particularly exposed to UK-specific economic risks, such as weak consumer confidence, domestic recession, or significant currency fluctuations, all of which could impact top-line revenue and profitability.
  
• Rising fuel costs, SAF (sustainable aviation fuel) premiums, and increasing environmental regulation (e.g., EU ETS) are expected to drive up input costs and operational expenses, outpacing the company's hedging capacity over the long term and threatening future margin expansion and earnings stability.
  
• Delays or challenges in aircraft deliveries due to supply chain disruptions at Airbus, combined with the continued reliance on leasing (JOLCO market) rather than direct ownership for the majority of new aircraft, may limit Jet2's operational flexibility, increase exposure to lease cost fluctuations, and impact long-term net asset value and return on capital.

Valuation

• The analysts have a consensus price target of £21.638 for Jet2 based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £25.0, and the most bearish reporting a price target of just £19.2.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be £9.2 billion, earnings will come to £507.9 million, and it would be trading on a PE ratio of 12.4x, assuming you use a discount rate of 11.0%.
• Given the current share price of £16.13, the analyst price target of £21.64 is 25.5% 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.