HSBC Upgrades Profit Forecast for EasyJet, Expects Ongoing Strength in Passenger Demand
HSBC, a leading financial institution, is optimistic about EasyJet's future, projecting continuous growth in passenger demand until 2024. As a result, the bank has increased its profit estimates for both this year and the following year.
For the full financial year until end-October, HSBC now anticipates the UK budget carrier to achieve an impressive pre-tax profit of £416 million ($534 million), indicating a 4% increase. Looking ahead to the subsequent year, the bank expects even greater success, with EasyJet projected to reach £623 million in pre-tax profit, marking a 2% rise.
This positive outlook comes after the airline's latest quarterly earnings report on 19 July, which saw it surpassing expectations by achieving a pre-tax profit of £203 million, exceeding the consensus expectation of £162 million.
HSBC attributes the company's success to various factors, including a substantial 23% year-on-year growth in revenue per seat, driven by a 22% increase in ticket yield and a 20% rise in ancillary earnings. Additionally, the carrier managed to keep ex-fuel costs to a minimal 2% growth, potentially due to managing the high disruption costs experienced in the same quarter of the previous year.
Furthermore, EasyJet's positive momentum is expected to continue during the winter season, as demonstrated by the airline's encouraging preliminary guidance for the first quarter of FY24 (October-December 2023). HSBC reports that yields and loads are projected to increase year on year, with a capacity growth of over 15%, which would bring the airline back to near-2019 levels of capacity for the quarter.
HSBC praises the airline's operational strength and outlook, despite limited visibility in the industry. As a testament to its financial prudence, EasyJet has paid down close to $1.5 billion of debt year to date, with a recent payment of $950 million in 3Q FY23. Moreover, EasyJet has secured 163 aircraft orders up to 2028 and is actively running a procurement process to secure aircraft beyond this period.
HSBC identifies potential risks for the carrier, primarily related to weakening consumer confidence and reduced travel expenditures. However, it maintains a positive outlook on EasyJet stock, reaffirming a 'Buy' rating and an unchanged target price of 850p, implying a significant upside of approximately 75% from the current stock price.