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Once a gloomy consensus clouds an industry, it can be slow to lift. Departing easyJet chief executive Johan Lundgren and his fellow European airline chiefs should know.
Lundgren said this week that he would end his seven-year tenure in early 2025. Today his legacy is a share price still about 60 per cent below pre-pandemic levels despite a recovery in revenues and earnings, plus the resumption of dividend payments. EasyJet trades at a 13 per cent discount to its pre-Covid price to forward earnings valuation.
It is not flying solo: many European airlines have de-rated and look undervalued. Pandemic-era capital raises partly explain unflattering share price performances. But investors are also scarred by multiple crises and fear recent robust trading will be as good as it gets. Lundgren’s successor, current finance director Kenton Jarvis, will have to focus on immaculate delivery to convince investors of easyJet’s growth story.
Lundgren’s time at the top was rarely without drama. EasyJet twice raised equity to get through the pandemic. He faced questions over his strategy, including whether he should have been more aggressive in a grab for market share post-pandemic.
But he leaves an airline in a robust state, even though some investors might argue that easyJet’s investment grade balance sheet is largely thanks to their benevolence following its larger than expected £1.2bn rights issue in 2021.
EasyJet should also avoid the worst of the snarl-up in plane deliveries that will constrain capacity in the next few years, and should support higher ticket prices. It will receive 10 fewer Airbus planes in 2025 than hoped but is not dependent on troubled Boeing.
A three-to-five-year aim of generating more than £1bn in headline pre-tax profit remains on track. That would be more than double 2019 levels. At least a quarter is expected to come from easyJet’s holiday business — Lundgren’s brainchild which operates a smart risk and asset-light model. EasyJet does not even block book rooms in advance.
Nerves about the airline industry are never far away. EasyJet shares fell more than 5 per cent after it said at half-year results this week that yields in its all-important summer quarter would be “slightly up” year over year.
Lundgren insisted the guidance was consistent with past outlooks. However, previous comments in which easyJet had said revenue per seat for that quarter was “well ahead”, had a less bullish tone, noted Gerald Khoo, analyst at Liberum.
That may have been a communication glitch. But it is a lesson for Lundgren’s successor that easyJet cannot afford even small slip-ups if it is to persuade those investors who currently have an aversion to flying.
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