Substantially Undervalued Despite the Headwinds
Briefing
- Thesis: Jet2 has released a solid FY 2026 trading update. Operating profit is expected at £435–440 million, broadly in line with expectations and only marginally below the prior year's £446.5 million. The small decline is entirely attributable to £11 million of start-up and promotional costs for the new London Gatwick base. Excluding Gatwick, operating profit would have been approximately £450 million — effectively flat year-on-year.
- Valuation view: Using estimated earnings per share of approximately 238.5p with a conservative 2% growth rate (reflecting the expected negative impact from higher costs) and a 20% crisis discount, I arrive at a valuation of approximately 1,771p. Against a current price of approximately 1,070p, this gives a value opportunity of +65.5%.
- Key risk: The Iranian crisis has caused the booking profile to shorten, with customers booking increasingly close to departure date. This limits visibility for the peak summer period. Risk factor is elevated at 35%, and I'm only giving it a 29% probability weighting because of the external headwinds.
- Key catalyst: London Gatwick launched 26 March 2026 with over 400,000 passengers already booked for summer. This further opens up the London and South East market. The fleet is expanding to 139 aircraft for Summer 2026.
- Overall stance: Buy. The company is substantially undervalued at current levels.
FY 2026 Financial Highlights
This is a solid set of numbers in a challenging environment, with the Iranian crisis and Middle East conflict providing a significant backdrop of uncertainty.
Key financials
| Metric | FY 2026e | FY 2025 | Change |
|---|---|---|---|
| Operating profit | £435–440m | £446.5m | −1% to −3% |
| Operating profit (ex-Gatwick start-up) | c.£450m | £446.5m | Broadly flat |
| Total cash | £3.3bn | £3.35bn | — |
| Net cash | £2.0bn | — | — |
| Undrawn revolving credit facility | £500m | — | — |
| Shareholder returns in year | £363m | — | — |
The balance sheet is exceptionally strong — £3.3 billion total cash, £2.0 billion net cash, plus access to an undrawn £500 million revolving credit facility. The company returned £363 million to shareholders during the year through dividends and buybacks.
My Profit and Loss Estimates
My FY 2026 estimate
| Metric | Figure |
|---|---|
| Operating profit (top end) | c.£440m |
| Estimated profit before tax | c.£578m |
| Tax rate | 25% |
| Estimated profit after tax | c.£433.5m |
| Estimated earnings per share | c.238.5p |
FY 2025 profit before tax was £593.2 million and basic earnings per share was approximately 296p. The decline reflects the Gatwick start-up costs and slightly lower operating profit. Shares outstanding have been reduced by the ongoing buyback programme.
Summer 2026 Capacity and Bookings
Summer 2026 overview
| Metric | Figure |
|---|---|
| On-sale capacity | 19.9m seats (+7.7% year-on-year) |
| Booked passengers to date | +6.2% year-on-year |
| Package holiday bookings | Positive growth |
| Flight-only bookings | Positive growth |
| UK bases (incl. Gatwick) | 14 |
| Population within 90-minute drive | >90% of UK |
The capacity increase of 7.7% to 19.9 million seats is positive but expected given the ongoing fleet expansion to 139 aircraft for Summer 2026.
However, the company is highlighting — consistent with previous updates — that the Iranian crisis has caused the booking profile to shorten, with customers booking increasingly close to departure date. This limits visibility for the peak summer period and beyond. First-quarter FY 2027 (April–June) load factor is in line with FY 2025, but the crisis is limiting visibility.
Fuel Hedging
Fuel position
| Metric | Figure |
|---|---|
| Summer 2026 hedged | 87% |
| Hedge price | $707/metric tonne (jet fuel swaps) |
| FY 2027 hedged | >75% |
The 87% hedge position at $707/metric tonne provides a high degree of cost certainty for this summer. They are unlikely to be badly wrong-footed by sudden fuel price spikes. They may need to pass on higher unhedged fuel costs to consumers in due course, but for the near term, the hedging protects them.
Revenue and operating profit (FY 2020–2026e)
Source: Jet2 annual reports. The COVID collapse (FY 2021–2022) followed by the rapid recovery to record levels is clearly visible. FY 2026 operating profit marginally below FY 2025 due to Gatwick start-up costs.
Valuation
I really like Jet2. There is a lot to be positive about — the growth plans, the Gatwick launch (performing ahead of expectations with over 400,000 passengers booked for summer), the fleet modernisation with A321neos, and the integrated leisure travel model. But outside the company's control, there's a lot going on: potential rises in inflation, higher energy costs, and geopolitical uncertainty in the Middle East.
VALUATION SNAPSHOT
| Metric | Figure |
|---|---|
| Current share price | 1,070p |
| Shares in issue | 181.71m |
| Market capitalisation | £1,944m |
| Earnings per share (my FY 2026 estimate) | 238.5p |
| Price-to-earnings ratio | 5.3x |
| Growth rate | 2% |
| Valuation multiple | 8x |
| Dividend yield | 1.5% |
| Valuation uplift / reduction | −20% (crisis discount) |
| Formula valuation | 2,213.28p |
| Actual valuation | 1,770.62p |
| Valued capitalisation | £3,217m |
| Value opportunity | +65.5% |
| Risk factor | 35% |
| Research grade | A |
| Probability | 29% |
| Proposed action | Buy |
Using a conservative 2% growth rate (reflecting the expected negative impact from higher costs over the next couple of years) and a 20% valuation discount for the current crisis environment, I arrive at a share valuation of approximately 1,771p. Against a current price of 1,070p, that's a +65.5% value opportunity.
The risk factor is elevated at 35%, and I'm only giving it a 29% probability weighting because of the external headwinds. But even with those heavy discounts, the stock is considerably undervalued.
Jet2 (JET2) — share price (last 12 months)
Source: London Stock Exchange data. Current price c.1,070p. Gold dashed line shows my 1,771p valuation — significantly above the current price.
Risks and What Could Go Wrong
- Iranian crisis escalation: A prolonged or worsening conflict would suppress demand for Mediterranean holidays, push fuel prices higher, and further shorten the booking curve.
- Booking curve shortening: Customers booking closer to departure reduces forward visibility and makes capacity planning harder. If this persists beyond the crisis, it becomes a structural issue.
- Fuel price volatility: While 87% hedged for summer 2026, the remaining 13% is exposed to spot prices. FY 2027 hedging at >75% still leaves meaningful exposure.
- Gatwick execution: The new base is performing ahead of expectations, but it is still in start-up phase. If it fails to reach profitability on the expected timeline, it will drag on group margins.
- Inflation and consumer confidence: Higher inflation could reduce discretionary spending on holidays, particularly for the price-sensitive end of the market.
- Low probability weighting: The 29% probability reflects the genuine uncertainty about whether the external environment allows the company to deliver on its potential.
What Would Change My Mind
- Iranian crisis de-escalation: A resolution would immediately improve forward bookings visibility, reduce fuel price risk, and lift the 20% crisis discount from the valuation.
- Booking curve normalising: A return to normal booking patterns would signal the geopolitical impact is fading and would support higher probability weighting.
- Gatwick base reaching profitability: Evidence that Gatwick is contributing positively to operating profit would validate the UK network expansion strategy.
- Share price below 900p: At lower prices, the value opportunity would widen further, making the risk/reward even more compelling despite the external headwinds.
- FY 2027 operating profit above £475 million: Beating the prior year's £446.5 million (inclusive of Gatwick) would demonstrate genuine growth through the crisis.
Conclusion — Buy
Lots going on for Jet2 — lots to be positive about with their growth plans, operational execution, and fortress balance sheet. But also lots of external potential issues that are outside management's control.
Nonetheless, the company is substantially undervalued at current levels. The hedging provides near-term protection, the Gatwick launch extends the UK addressable market, and the integrated holiday model continues to drive customer loyalty and repeat bookings.
Value opportunity: +65.5% (probability 29%). Undervalued.