It's not the most loved airline among investors, but the holiday business is holding up nicely.
Dear readers,
Among European airlines, I probably hear more off-the-record criticism of EasyJet than any other large carrier. Readers, including some who work at competitors, ask whether it has lost its way and speculate that the wounded carrier will be part of future European consolidation.
My frame of reference is the U.S. market, and when my U.S. readers tell me about a flailing airline, they’re usually referring to a company in dire shape — one that’s losing money even as other airlines report profits, such as Hawaiian, Spirit, Frontier, or JetBlue.
To my surprise, however, EasyJet made decent money in its 2023 fiscal year, which ended Sept. 30. The company last week said it made a net profit, before taxes, of £455 million ($577 million U.S.) on total revenues of £8.17 billion. EasyJet called out strength in its holidays division, which produced a £122 million in profit before tax in the 2023 fiscal year, which is a 221 percent increase year-over-year.
I want to focus on that vacation business today, because I think what CEO Johan Lundgren has achieved in the past six years is impressive. Before Lundgren, who previously worked at Tui, EasyJet outsourced its holidays division, and took a slice of the revenue from the firm that ran it. Lundgren promised to reverse that decision, and he hired Garry Wilson, another former Tui executive, to run EasyJet Holidays. They have turned EasyJet Holidays into a formidable enterprise that should, if all goes well, soon account for a larger slice of EasyJet’s profits.
All this doesn’t mean Easyjet won’t end up a victim of consolidation. But it does suggest it’s a valuable company with a vacation business worth having.
Here are a few things about EasyJet Holidays that I found interesting.
The vacation business is quite profitable
EasyJet wants investors to value its vacation business, so it shared significant detail about the segment’s profitability in a slide deck that accompanied the company’ Nov. 28 earnings release.
EasyJet Holidays said its 1.9 million customers, who take up roughly 4 percent of the airline's seats, produced £1.047 billion in revenue during the completed fiscal year, with the business posting a gross margin of 19 percent and a pre-tax profit margin of roughly 12 percent.
EasyJet likes the business for a number of reasons, but a key one is its low fixed costs. Of the £925 million it spent on holidays in its last fiscal year, EasyJet estimates less than 4 percent went to fixed costs.
