EasyJet shares reach for new highs as rivals close in

EasyJet shares are set to match all-time highs first claimed in April last year, after a stronger-than-expected performance in the winter season.

Continuing streamlining, including initiatives to expand its network to about 500,000 seats, enabled the second-largest budget carrier to wrong-foot the traditional ‘low season’ for airlines, by posting much shallower first-half losses than in the year before.

Airlines and holiday companies tend to make a loss over the winter season.

Still, a sales rise of 3.8% in the quarter to 31st December of £931m enabled easyJet to anticipate first-half losses could be as low as £10m and unlikely to exceed £30m, much more contained than the £53m loss EZJ reported in the first half a year ago.

All in all, the UK’s biggest passenger carrier continues to put up a good fight against its bigger rival Ryanair.

I don’t perceive any strong sign yet that investors are materially rejecting easyJet’s investment case in favour of its Irish rival.

EZJ stock is almost back to the peak strength it reached last year on a weekly basis, although, the close for a week at or above all-time highs around 1853p that would affirm a persisting bullish share price outlook, has not been seen so far.

Willie Walsh, IAG catching-up fast

We don’t have to look very far for reasons for the lingering tardiness, despite easyJet’s confirmed fundamental and chart strength.

There’s little let-up in fierce UK airline sector competition.

In fact, it’s arguably becoming more acute.

The relentless logic of pricing and scale are being embodied right now by the materialisation of further consolidation, with increasing likelihood that International Consolidated Airlines Group Plc., which controls British Airways and Iberia, will merge with Ireland’s Aer Lingus.

There’s no doubt the leadership of those two flag carriers in the shape of Willie Walsh, with his finely-honed expertise in battling on margins, represents a clear medium-term threat to easyJet and, Ryanair too, naturally.

But perhaps the enlarged IAG would represent a greater risk for the UK’s low-cost airline.

EasyJet’s head start obviously provides advantages. But IAG’s catch-up profile alone, represented by trailing price/earnings ratio of 17.4 times versus EZJ on 14.6, ought to be sobering for the latter.

EZJ still edges IAG on forward P/E, but complacency is likely to be punished, and margin for error looks slimmer for the established budget players.

Having said all that, for now, we need to recognise a strong uptrend when we see one, and a break-out on solid momentum too.