It is the best of times for UK budget airlines easyJet (code EZJ), Ryanair (RYA) and Jet2 (owned by Dart Group, DTG)! Medium-haul airline passenger traffic to European destinations just keeps on growing as UK households seek to escape to sunnier climes from the generally gloomy weather at home. European air passenger traffic grew nearly 6% over the last quarter of 2014 (Figure 1).


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Source: Market Realist, IATA




With a favourable following wind from the strong UK economy flowing through into:


  • higher employment (unemployment rate of 5.8%, lowest since mid-2008),
  • stronger wage growth and
  • record high consumer confidence (highest reading in over 10 years),



this bullish traffic trend should be sustained over this year and into 2016 (Figure 2).


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Source: Bloomberg




Both easyJet and Ryanair have ridden this UK consumer boom with a combination of rising passenger traffic (easyJet +6.3% year-on-year; Ryanair +7.6%; Figure 3) and improving load factors (the amount of seats per flight that are occupied; over 90% for easyJet and 87% for Ryanair). A rising load factor means better efficiency, and higher profits.




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Source: Stockopedia




Reinforcing this trend, IAG (parent company for British Airways and Iberia) reported stellar passenger growth in January of 12.1% for its European routes compared with January 2014, far outstripping passenger traffic growth for other regions.



Profits Boosted by Lower Fuel Costs


Of course, fuel costs are a huge part of any airline's overall running costs, so the 50% drop in crude oil prices will have a positive leveraged impact on the bottom line for these three companies (Figure 4) – albeit with a lag, given that they all hedge future fuel costs to some degree to reduce the volatility and to improve the predictability of their cost bases.




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Source: Platts, RBS, Digital Look




The near-halving in jet fuel costs since mid-2014 will continue to gradually flow through to…

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