Reporting on Tuesday was low-cost airline easyJet (LSE: EZJ). Its shares declined by almost 6% following its first-half update, but are still up by 23% since the start of the year. This performance has been relatively impressive given the challenging nature of the airline industry in recent months.
In fact, easyJet seems to be adequately coping with the difficulties it faces. Could this prove to be the last buying opportunity before its share price resumes the upward trajectory of 2017-to-date?
A difficult marketplace
As mentioned, life has been tough for airline companies such as easyJet in recent months. This was evidenced by the firm’s increasing loss, with its total loss before tax of £236m being much worse than the £18m loss of the first half of the prior year. A key reason for this was a rise in headline cost per seat of 4.9%, while the timing of Easter and high overall market capacity growth also weighed on its financial performance.
Despite this, the company enjoyed a record period for passenger numbers. They increased by 9% versus the same period of the prior year. This reflected easyJet’s low-cost fares and attractive network, which should enable the company to continue to grow passenger numbers. That’s especially the case since it continues to increase capacity through greater investment. For example, capacity increased by 8.4% in the first half of the year.
In terms of the company’s outlook, it looks set to experience further challenges in the second half of the year. Greater market capacity growth looks set to continue, which could mean that easyJet’s focus on cost control becomes particularly relevant. That said, its bookings for the summer are ahead of last year and it continues to see an improving revenue per seat trend.
This combination, though, is not set to be sufficient to enable a rise in earnings in the current year. The company’s bottom line is due to fall by 30% in 2017. However, a return to growth of 17% next year suggests the outlook for the business remains upbeat. And since it trades on a price-to-earnings growth (PEG) ratio of just 0.8, now could be the perfect time to buy it for the long run.
Also offering upbeat long-term growth potential is sector peer Fastjet (LSE: FJET). The Africa-focused airline has endured a period of major change of late, with a rationalisation of its routes, changes to the aircraft it operates and a head office relocation all taking place. It has also conducted a fundraising, while at the same time seeking to lower costs and develop sustainable growth for the long term.
With Fastjet forecast to move into profitability next year, its share price could gain a boost from improving investor sentiment. Since it trades on a forward price-to-earnings (P/E) ratio of 13.2, it appears to offer value for money for the long term.
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Peter Stephens owns shares of easyJet. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.