It's a brutally competitive market without doubt, and with competitors such as Ryanair and its mercurial CEO around, you get perhaps some extra heat compared with other industries.
Yet short-haul, leisure-focussed air travel in Europe has seen a few decent years ever since the start of consumers' revenge buying in the aftermath of the pandemic. For a sector accustomed to razor-thin margins and constant battles for market share, those were particularly good months.
EasyJet ranks among the best players in this industry, both in terms of operational efficiency and market share. The UK based carrier boasts an Airbus-only fleet, thus escaping from the perennial problems of Boeing's 737 MAX aircraft; and with its strategy of flying from established airports and even hubs, the airline is also able to address the market of business travel, a customer group usually out of reach for no-frills carriers (even if at the expense of relatively higher costs).
Into the addition, the lads and lassies from Luton have built up their own holiday franchise over the past years, enabling them to sell their own package holidays to sun-loving British customers, thus reaping some of the yield that went to tour operators while competing with other integrated tourism businesses such as German TUI. This development promises to boost the airline's ancillary revenue, a much-coveted source of income for no-frills carriers.
EasyJet is only now starting to cash in on these efforts, while maintaining their excellent flying operations, buttressed by an above-average balanced sheet when it comes to the highly leveraged airlines industry. This is mirrored in the carrier's also above-average margins, and its revenue growth ought to be above-average as well for the reasons stated.
Yet where Easyjet is definitely lacking is in terms of valuation. For some reason, investors seem to be ignoring the airline's good market position, awarding it a meagre PE ratio of between 7 and 8, which is a full two percentage points below the industry's average. The most probable reason is that investors deem the company to be a mongrel between an airline and a tour operator, not yet able to realise the profits from a truly integrated business.
This, by the same token, is an opportunity for patient investors: The moment the markets catches on to the carrier's compelling story, the share price got a decent upside potential to the tune of some 30 per cent over the next three years.
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