At first look, it isn’t clear why anybody would spend money on airways. The sector tends to seek out itself on the mercy of financial cycles; firms are asset-intensive and usually extremely leveraged; and low margins imply they aren’t significantly worthwhile even within the good instances.
Current share worth strikes inform a unique story, nevertheless. The market worth of International Airlines Group, the British Airways proprietor, has risen by virtually two thirds this yr. Shares in low-cost service Jet2, a uncommon Intention-listed success story, are up 30 per cent. The advantage of cyclicality is that downbeat sentiment can rapidly reverse.
Loads of scepticism stays. Most airline valuations sit beneath pre-pandemic averages, regardless of two years of post-pandemic “revenge spending” on journey. One weak spot is that well-publicised points at aircraft suppliers Boeing and Airbus have made it onerous to capitalise on demand by scaling up.
That will show a blessing in disguise if issues concerning the resilience of this demand, sparked by summer season warnings at firms starting from American Airways to Ryanair, show on the cash. Most UK-listed operators have shrugged off this threat up to now. IAG, easyJet and Jet2 supplied reassuring updates this month. Wizz Air, hit by Pratt & Whitney engine points, was an exception.
Routes to prosperity differ. IAG, however British Airways’ rising operational points, nonetheless banks on its transatlantic routes. Jet2 has benefited from the growth of its extra worthwhile package deal vacation arm. For now, the shared attribute is pricing energy: the flexibility to cross on price will increase with little hit to gross sales volumes.
BUY: EasyJet (EZJ)
Passenger numbers rose by 7 per cent within the second half and demand on the holidays arm is powerful, writes Christopher Akers.
EasyJet’s headline income grew by 34 per cent to £610mn within the yr to September 30, after the low-cost airline loved one other robust summer season.
Annual income rose 14 per cent to £9.31bn on capability development of 8 per cent, increased seat pricing and sturdy package deal holidays development. Passenger income was up 9 per cent, ancillary income up 14 per cent, and holidays income up 47 per cent.
Pre-tax profit growth was led by the vacations arm, the place the underside line greater than doubled to £190mn as buyer numbers grew 36 per cent and UK market share rose from 5 per cent to 7 per cent. The corporate expects buyer development of 1 / 4 in 2025, whereas the medium-term revenue goal of £250mn is in sight.
In the meantime, income on the airline enterprise improved 26 per cent to £420mn. Airline passenger income per seat was up 1 per cent on an annual foundation and within the fourth quarter.
Steerage is for capability development of three per cent this yr, with an anticipated 8 per cent rise in obtainable seat kilometres and sector size improve of 5 per cent highlighting extra winter solar locations. Administration forecasts a “vital enchancment” in winter losses within the first quarter.
EasyJet trades on an undemanding eight instances ahead consensus earnings. Whereas the trail of load components and yields is difficult to pinpoint, clear demand power and an enhancing return on capital employed means we transfer increased once more.
BUY: Jet2 (JET2)
Revenue for key summer season buying and selling interval beats forecasts, writes Michael Fahy.
Jet2 loved one other bumper summer season, displaying few indicators that it had suffered the identical degree of pricing strain as friends.
Even after rising capability by 13 per cent, it crammed most of its planes. Whole passenger numbers had been up 11 per cent, and the variety of higher-margin vacation package deal clients grew by 8 per cent. Costs additionally elevated by 6 per cent as “supply-led inflationary will increase had been handed on”.
Flight-only passenger numbers had been up 18 per cent, so though ticket yields softened by 1 per cent to £131, the general improve in numbers meant its whole margin improved.
Certainly, the group’s revenue earlier than tax and foreign money fluctuations grew by 16 per cent to £772mn, which was round £150mn increased than consensus forecasts. Although the corporate will declare a loss throughout the quieter winter interval, subsequently, full-year earnings are additionally on monitor to beat forecasts.
Jet2 took supply of 10 new Airbus A321neo planes throughout the interval, which is able to assist it to extend capability by an additional 9 per cent subsequent summer season. The elevated capex concerned isn’t (at the least for now) a problem, given a web money stability of £2.3bn (or £984mn if buyer deposits and leases are excluded). The primary concern is subsequently whether or not Jet2 can proceed to fill the additional seats. It has been helped this yr by the truth that rivals, together with Ryanair and Wizz Air, have had their very own growth plans curtailed by provide chain issues.
Each administration and analysts stay assured, with the latter group forecasting a 6 per cent improve in earnings per share this yr, adopted by 5 per cent subsequent. With the shares buying and selling at lower than eight instances forecast earnings, we additionally stay upbeat.
HOLD: Halfords (HFD)
Shares rally however the firm faces obstacles to hitting mid-term targets, writes Michael Fahy.
The 14 per cent bounce in Halfords’ share worth after a reasonably pedestrian set of outcomes may need been extra stunning if the shares hadn’t fallen by the identical quantity on the again of a equally anodyne buying and selling assertion final month.
Buyers are clearly jittery, given the corporate’s current historical past of revenue warnings.
A small uplift in income in its autocentres enterprise made up for a equally marginal decline in retail gross sales, with the web impact being flat like-for-like gross sales.
Underlying pre-tax revenue was additionally flat, however £3.2mn of one-off prices protecting department closures, a brand new warehouse administration system and cloud migration prices meant reported pre-tax revenue fell by 23 per cent.
Free money circulate was robust at £28.1mn, although, permitting the corporate to complete the interval with a small web money stability (excluding leases).
Administration had been comfortable sufficient with the end result, too, pointing to headwinds together with inflation, “file labour price will increase” and better enterprise charges.
The biking market stays “in faster decline than anticipated”, chief monetary officer Jo Hartley advised traders, with volumes a couple of third beneath pre-pandemic ranges. Demand for tyres additionally stays 13 per cent decrease however is slowly returning to development.
Each Halfords’ motoring merchandise and motoring providers companies reported respectable development, although, with the latter being the standout. It has managed to extend its share of a rising market, with better-trained mechanics in a position to establish extra work required on a automobile. “We’ve seen a powerful 30 per cent improve in work recognized,” chief govt Graham Stapleton mentioned.
Though present buying and selling stays “unsure” following the current Finances, which is able to add one other £23mn of labour prices from subsequent April, Halfords stays on monitor to satisfy consensus forecasts.
Nevertheless, the post-results bounce brings its share worth as much as almost 16 instances forecast earnings. Though this falls to 13 instances on 2026 estimates, the corporate has additionally mentioned that progress in the direction of the £90mn-£110mn medium time period pre-tax revenue goal set finally yr’s capital markets day has slowed. It has but to see the restoration in finish markets it anticipated, and administration suppose it will likely be “difficult to completely mitigate” the extra prices from the Finances within the quick time period, significantly in retail gross sales.
