British airline easyJet (EZJ.L) on Wednesday forecast a smaller first-half loss and strong summer bookings, boosting its shares despite a writedown of about 40 million pounds ($51 million) due to the conflict in the Middle East.
The low-cost airline reported a first-quarter headline loss before tax of 126 million pounds, compared with a loss of 133 million pounds a year ago. Its shares jumped 5% in early trade to their highest since March 2023.
European airlines benefited from robust demand in 2023 as travel continued to bounce back from the pandemic, but worries over high jet fuel prices, geopolitical instability in the Middle East and economic uncertainties caused some concern.
"We see positive booking momentum for summer 2024 with travel remaining a priority for consumers," said Chief Executive Johan Lundgren in a statement.
The company also said that, while jet fuel costs would remain flat in the first half of its financial year, they were set to rise by single digit percentages in the second half, with 55% of its fuel for that period hedged.
EasyJet said it was able to mitigate the impact of the war in Gaza thanks to capacity growth in areas where demand was rising, and that bookings had recovered since late November.
However, it said it would maintain its pause on flights to Israel and Jordan and had seen a slowdown in demand to Egypt as a result of the war, leading to the writedown, but added the latter was also expected to rebound.
"Shutting down routes is a very expensive undertaking and it’s unclear when things will normalise," said Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown.
SHARES AND SUPPLY CHAIN
Even before Wednesday's rise, easyJet's shares were outperforming European rivals as it benefits from holidaymakers' voracious appetite for travel following COVID-19 lockdowns. Since January last year, its stock has soared 57%, outpacing budget rival Ryanair (RYA.I) and national airlines.
In November, it reinstated its dividend, among the first major European airlines to do so since the pandemic.
Its shares trade at 8 times forecast earnings over the next 12 months, among the highest in the European sector. The so-called price-earnings ratio is a widely used gauge of the relative value of stocks.
However, it's still unclear how supply chain constraints could impact ticket prices, Lundgren added on a press call, as capacity will likely be tighter than expected this year.
Sixteen aircraft deliveries are set to go ahead as planned, the company said, adding it will use CFM, owned by General Electric (GE.N) and Safran (SAF.PA), as its engine supplier for 314 engines on its recent order of 157 Airbus (AIR.PA) jets.
($1 = 0.7873 pounds)
