Disappointing Update, But the Long-Term View Holds

easyJet is a European low-cost airline, operating scheduled short-haul and medium-haul point-to-point services across Europe. The company operates under three affiliate airlines (easyJet UK, easyJet Switzerland, and easyJet Europe) and runs 321 aircraft across 29 bases in Europe, with London Gatwick being the largest.

Revenue comes from two main sources: the airline business (ticket sales plus ancillary revenue like seat selection, baggage fees, and on-board sales), and easyJet holidays, a package holiday business that bundles easyJet flights with hotel accommodation and transfers. easyJet holidays has been the standout growth story of recent years and is now an increasingly important profit contributor.

• Load factor: This measures how full the planes are — higher is better. H1 load factor was 90%, up 2 percentage points year-on-year. This is a strong indicator of underlying demand.
• easyJet holidays growth: Customer growth of 22% year-on-year in H1 is very strong. easyJet holidays has much higher margins than the airline business and is the main source of medium-term profit growth.
• Revenue per available seat kilometre: Often called "RASK," this measures how much revenue the airline generates per seat per kilometre flown. Q2 RASK was up approximately 3% year-on-year, driven by route maturity and an earlier Easter.
• Cost per available seat kilometre excluding fuel: Often called "CASK ex fuel," this measures operating costs per seat per kilometre, excluding the volatile fuel component. H1 CASK ex fuel was up approximately 8% year-on-year (including the £30 million legal provisions), with H2 expected to rise low single digits.
• Fuel costs: Fuel is typically 25–30% of an airline's total costs. H1 FY 2026 saw a £25 million incremental fuel cost from the Middle East conflict. H2 is 70% hedged at $706/metric tonne, with spot at $1,500 — meaning every $100 move in fuel prices equates to approximately £40 million in H2 costs.
• Balance sheet strength: Net cash of £434 million, liquidity of £4.7 billion, and 86% of the neo aircraft fleet owned outright. This is an unusually strong balance sheet for an airline and provides significant resilience.

The airline is expected to report a headline loss before tax of between £540 million and £560 million for H1 FY 2026. That compares to an H1 FY 2025 headline loss of £394 million — a material deterioration of roughly £150 million at the midpoint.

Key H1 metrics

The underlying demand picture is actually reasonably positive — load factor of 90% is strong, easyJet holidays continues to grow customer numbers by 22% year-on-year, and the Q1 FY 2026 update in late January showed revenue up 11% to £2.26 billion with passenger numbers up 7%. Demand is not the issue, yet. The issue is a combination of:

• A £25 million additional fuel cost hit attributed to the Middle East conflict, which has driven up jet fuel prices materially.
• A £30 million increase in legal provisions for a number of historic cases. £30 million seems a lot, but I'm sure it's fine in the context of a business of this scale.

The company highlights that the Middle Eastern crisis has affected bookings, with the booking curve "shortening" in recent weeks — customers are booking closer to their travel date. This creates forward-visibility uncertainty and is clearly not good for the company. It's a classic signal of consumer caution in an environment of geopolitical uncertainty.

Bookings position

The unhedged portion of fuel for March was approximately 18%, meaning the company has limited immediate exposure to spot price movements — but that still leaves material sensitivity.

Fuel sensitivity

The £40 million-per-$100/tonne sensitivity on H2 fuel costs is substantial and worth keeping in mind given current jet fuel volatility. CEO Kenton Jarvis has publicly warned about fuel shortages and said supplies are only guaranteed for the next three weeks, which gives a sense of the operating environment.

Balance sheet strength

Share price data

The stock has been hit hard by the Middle East conflict, with most of the 18% 12-month decline coming since the Iranian crisis began. The forward price-to-earnings ratio of approximately 5.9 times looks superficially cheap, but this reflects the current earnings uncertainty rather than a structural opportunity.

This is a disappointing trading update, but I'm not going to alter my long-term valuation on the back of it. My valuation for easyJet is based on expected profitability three years out, and a single half's deterioration driven by two identifiable one-offs (fuel from Middle East conflict, historic legal provisions) doesn't change that. I want to see some further news before making a more substantive judgement on how the full-year figures are affected overall.

The key things I'll be watching:

• Whether the short booking curve persists beyond the current crisis
• How fuel hedging and the unhedged portion plays out into H2 (which contains the critical peak summer period)
• Whether the £30 million legal provision is a one-off or flags something more systemic
• Any further commentary on the medium-term £1 billion profit before tax target

My valuation is based on expected profitability three years out, assuming a normalised profit after tax of approximately £750 million. At current levels, the stock offers a +86.4% value opportunity, even after discounting by 40% to reflect the time needed to reach that profitability and likely hiccups along the way.

VALUATION SNAPSHOT

• Fuel price volatility: Spot jet fuel at $1,500/metric tonne versus a hedge price of $706. With 30% of H2 fuel unhedged, every $100/tonne move is worth £40 million — and supplies are reportedly only guaranteed for three weeks.
• Middle East conflict escalation: If the Iran/Strait of Hormuz crisis worsens, it could prolong booking curve weakness, suppress demand for holidays to affected destinations (Egypt, Turkey, Cyprus), and push fuel prices higher still.
• Persistent short booking curve: If the current tendency to book late extends beyond the crisis period, forward visibility will remain impaired and capacity planning becomes harder.
• Legal provision recurrence: The £30 million legal provision is described as relating to historic cases. If further material claims emerge, this could prove systemic rather than one-off.
• Competitive overcapacity: The company has flagged competitive overcapacity in certain markets, which is putting pressure on pricing even where demand is holding up.
• Strategic investment cost: The Milan Linate and Rome Fiumicino bases are costing £30 million in their first winter year. If these take longer than expected to reach profitability, it would drag on returns.

• Booking curve normalising: A return to normal booking patterns would signal the geopolitical worries are easing, and visibility for peak summer trading would improve.
• Medium-term £1 billion profit before tax target withdrawn or pushed back: Any weakening of this target would significantly undermine the long-term valuation case.
• Load factor falling below 85%: A sustained drop in load factor would suggest demand is weakening structurally, not just in response to short-term factors.
• easyJet holidays growth slowing below 10%: The package holiday business is the key medium-term growth engine. A slowdown here would be materially concerning.
• Further legal provisions: If additional material historic case provisions emerge, it would suggest the £30 million is the tip of the iceberg rather than a one-off clean-up.