An air-traffic controller strike in France, a fire at Rome’s airport, terrorist attacks in Tunisia, and Greece’s great depression. The omens weren’t great for EasyJet’s latest quarter, but the budget airline’s shares jumped today after it unexpectedly reported halfway decent results for the three months to June.
The strikes, fires, and other strife took a toll on profit, of course, but a perky UK economy and busy routes to beach destinations cushioned the blow. And things are looking good for the rest of the summer—more than three-quarters of seats are already booked through the end of EasyJet’s fiscal year (to September), and the company expects full-year profit to grow by up to 14%.
But meanwhile, EasyJet’s bigger budget rival, Ryanair, has been flying much higher of late:
A turnaround effort at Ryanair over the past 18 months has paid off handsomely for the Dublin-based airline, as it added a few more frills, and some much-needed friendliness, to its services. In short, it became more like EasyJet. The markets have fallen hard for the charm offensive, encouraged by Ryanair’s superior scale—it carries around 30 million more passengers per year than EasyJet.
Gerald Khoo, an analyst at broker Liberum, thinks investors are getting ahead of themselves. Despite Ryanair’s “remarkable” turnaround, he worries that the rise in costs from adding frills and overhauling its bare-bones systems will dampen profits when oil prices start to rise again. It’s “excessive” that EasyJet is trading at a 30% discount to Ryanair on a price-to-earnings basis, Khoo wrote in a research note today.
Ryanair may have learned some important lessons from its rival recently, but maintaining its current altitude won’t be easy. EasyJet’s commitment to its strategy, and resilience through recent turmoil, may prove it’s better positioned for when things get bumpy.