Easyjet is “in the firing line” for demotion from the FTSE 100 as investors fear the budget airline carrier could be squeezed by Budget tax hikes and weak consumer confidence.
The budget airline carrier’s share price fell 1.61 per cent in early morning trading to 472.6 pence, tumbling 14.6 per cent this year to date.
Richard Hunter, head of markets at Interactive Investor, added that this sharp share price fall could place the Budget airline “in the firing for demotion from the FTSE 100”.
Mark Crouch, market analyst at Etoro, said: “Easyjets share price has behaved as if someone left the air brakes on.
“Three years of earnings growth and falling energy prices should have created a powerful tailwind, one that may not blow forever.
“Investors may simply be tired of waiting for valuation upside that never seems to leave the runway.”
Outlook and Budget woes
The group has maintained its medium-term guidance of profit before tax of £1bn, however, analysts fear that Wednesday’s Budget may impact the carrier’s short-term profits as “economic concerns persist”.
Gary White, chief investment commentator at Charles Stanley, said: “A lot of the near-term direction depends on maintaining consumer confidence, and the market remains highly competitive which could put margins under pressure.”
Crouch also noted the Budget may put a “further squeeze on household finances”, but a continuation of cheap holiday packages may keep customers coming back, helping shares “finally gain some altitude”.
But aviation leaders have also warned that a fresh hike on air passenger duty (ADP), the amount charged per customer on flights departing from the UK and is typically attached to ticket prices, will also increase fares and could weaken holidaymaker demand.
The economy rate of ADP for short-haul international flights is already set to increase by £2 to £15 from next April, the first increase in 14 years.
Package holidays rake in cash
Despite the share price tumble, group profit before tax increased nine per cent to £665m.
Revenue also rose by nine per cent to £10.1bn, bolstered by an expanded fleet capacity and the offering of new flight routes beyond the EU.
The FTSE 100 staple also saw its airline arm revenue jump 6 per cent to £8,666m, credited to its 4 per cent increase in customer capacity to 104m seats.
But it was the carrier’s holiday division that was responsible for the uplift, with revenue rocketing by 27 per cent to £1.4bn.
This reflected the resurgence in price-controlled holiday packages as customers become increasingly price-sensitive.
Customers choosing a package holiday increased by 20 per cent to 3.1m, allowing the company to expand its UK market share from 7 per cent to 10 per cent.
The group expects its customer base to grow by 15 per cent in the next financial year to 3.6m.
The arm also achieved profit before tax of £250m, surpassing its original medium term target, and leading the group to set a new target of £450m by the 2030 financial year.
The group is preparing to inject further investment into the arm to attract customers in markets beyond the UK, including Switzerland, France and Germany, through adding additional city destinations.
Crouch said: “It will be Easyjet’s holiday division that turns investors’ heads.”