- Winter load factor down 2.2%
- Margins to come under pressure
- CEO ‘satisfied’ with early Summer 2025 bookings
Airline and package holidays provider Jet2 (JET2:AIM) assured investors that despite continued late bookings and competitive pricing, profits for the year to 31 March 2025 should be 8% to 10% higher.
So why did the shares drop 10% to £14.10 in early dealings on 19 February?
The catalyst was the uncertain outlook for next year, with Jet2 warning margins could come under pressure due to soaring costs, the squeeze on consumer incomes and a continuation of the later booking profile witnessed last summer.
SERIOUS COMPETITOR
Jet2, which has earned a reputation for good customer service and reliability and is now a serious competitor for low-cost airlines EasyJet (EZJ) and Ryanair (RYAAY:NASDAQ), expects to report year-to-March 2025 pre-tax profit of between £560 million to £570 million.
This guidance represents a healthy year-on-year increase of between 8% to 10%, though it also assumes ‘no material extraneous events’ occur in the remaining weeks of the financial year.
Investors were unimpressed by news of softer Winter trading, however, with the squeeze on household incomes reflected in a 2.2% drop in the season-to-date load factor.
Jet2 also highlighted a litany of cost pressures which will impact year-to-March 2026 earnings, ranging from higher wage, national insurance contribution and fuel costs to inflation in hotel accommodation and aircraft maintenance costs as well as higher general airport and Eurocontrol charges.
In addition, the company said its two new operating bases at Bournemouth and London Luton airports are expected to be ‘modestly’ loss-making in their first year of operation.
WHAT DID THE CEO SAY?
Chief executive Steve Heapy said his charge was ‘very pleased with how the 2025 financial year is ending and our expected 8% to 10% profit growth, and given the limited forward visibility we are satisfied with early bookings for Summer 2025. We continue to believe our customers cherish their time away from our Rainy Island and want to be properly looked after throughout their holiday experience and we will continue to invest in our business to meet these expectations.’
But Heapy also warned current macro-economic conditions, pressures on consumer discretionary incomes, the later booking profile and the cost headwinds facing the business ‘may mean profit margins in the year ahead come under some pressure’.
FORTRESS BALANCE SHEET
Despite the disappointing update, Canaccord Genuity maintained its ‘buy’ rating and £20.50 price target on Jet2, stating: ‘To us, pre-tax profit growth potential despite external pressures continues to demonstrate Jet2’s strengths, stemming from the value of holidays - which are greater than 80% of Jet2’s revenues - backed up by a Fortress Balance Sheet.’
AJ Bell head of investment analysis Laith Khalaf pointed out travel stocks have enjoyed a real time in the sun over recent years, ‘but there is recent evidence the good times might be on their way out - with Jet2 the latest name to disappoint the market.
‘While the company boosted profit guidance for the 12 months to the end of March, the shares were in a tailspin as investors turned their attention to warnings of cost pressures in the year ahead.’
Khalaf added: ‘The company says it sees the risk of pressure on margins as households’ ability to spend whatever it takes for a week in the sun begins to ebb away. Add in delayed delivery of new planes and the impact of Budget changes and it’s no surprise Jet2 is feeling gloomier.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Ian Conway) own shares in AJ Bell.
