Jet's Stock Value: Long-term Profitability through Short-term Instability
In a positive turn of events, budget airline EasyJet has reported a robust performance in its third quarter of 2025, despite facing headwinds from fuel costs and air traffic control (ATC) strikes.
EasyJet's headline profit before tax for Q3 2025 stood at £286 million, an increase of £50 million year-over-year, in line with expectations. The airline's available seat kilometers (ASK) capacity grew by 7.9%, and revenue per available seat kilometer (RASK) increased by 0.5%. The total headline cost per available seat kilometer (CASK) saw a reduction of 0.5%, largely due to a 7.3% reduction in fuel CASK.
The holidays segment proved to be a significant contributor to EasyJet's success, with revenue rising 27.4% to £428 million in Q3. The holidays division delivered a profit before tax of £86 million, up £13 million year-over-year. The company expects its ASK growth for the full year to be approximately 9%.
EasyJet's financial position has significantly strengthened, with the airline securing a new $1.7 billion revolving credit facility, boosting its liquidity to £4.9 billion. The company has also repaid a €500 million eurobond, resulting in a net cash position of £803 million.
However, EasyJet has acknowledged challenges from higher jet fuel costs and French ATC strikes, which had operational impacts in early July. These factors have caused short-term profit growth pressures, contributing to a recent fall in share price despite robust earnings improvements.
Despite these challenges, analyst projections see EasyJet's earnings growing annually by about 12.2% through 2027. The discounted cash flow valuation indicates that EasyJet shares are undervalued at present, suggesting market optimism for medium-term recovery and growth driven by rising revenues and long-term capacity investments.
EasyJet's target for the medium term is to achieve a pre-tax profit (PBT) of over £1.00 billion. The airline's earnings are projected to grow at a compound annual growth rate (CAGR) of 11.9% through to FY27.
In terms of ancillary revenue, EasyJet saw a 5.6% increase to £732 million in Q3. Ticket yields (RASK) rose 1.8% to 4.64p, while fuel costs increased by only 0.3% to £627 million due to lower fuel prices. However, unit costs excluding fuel (CASK ex. fuel) rose 2.3% to 4.39p due to higher navigation fees, wages, and airport costs.
Looking ahead, EasyJet's Q4 forward bookings remain 1.0% higher than last year, and the airline's Q1'26 forward sales are up by 1.0% to 19.0%. EasyJet's Holidays sales for Q1'26 are already half booked for the quarter.
EasyJet's PEG (Price/Earnings to Growth) ratio is 0.7 against the sector average of 2.3, indicating an undervalued proposition. The airline's EV/EBITDA (Enterprise Value to Earnings Before Interest, Taxes, Depreciation, and Amortization) ratio is currently 2.4, lower than its sector and adjusted 5-year averages. EasyJet also targets a 60.0% uplift to its net book value.
In summary, EasyJet's current financial performance demonstrates resilience with growth in capacity, revenue, and profit, supported by strong liquidity. While short-term challenges prevail due to fuel price volatility and ATC strike disruptions, the company's positive bookings trend, holidays profit contribution, and strategic financing position provide a solid foundation for recovery and earnings growth beyond the near-term turbulence.
References: 1. EasyJet Q3 2025 Update 2. EasyJet Q3 2025 Financial Results 3. Analyst Projections for EasyJet 4. EasyJet Warns of Profit Growth Pressures 5. EasyJet's Holidays Division Performance
- In light of EasyJet's Q3 2025 financial results, the airline demonstrates growth in various business aspects such as profit, capacity, and revenue, indicating potential for investing in their stocks.
- Despite challenges like fuel cost increases and ATC strikes, EasyJet's financial position in finance shows a strengthening trend with analyst projections indicating an annual earnings growth of about 12.2% through 2027, making it an attractive proposition for businesses or individuals considering investing.
