The next carrier in our airline outlook series is Jet2.com, which has reported impressive recent results in spite of the difficult environment. This profile shows how a focused business model serving a defined niche - "city, sun and ski" leisure markets - can be successful. Jet2.com recently stated it expects parent company, Dart Group, to report profits in excess of GBP30 million in the first half of the current financial year (ending 30-Sep-08). However, the slowing UK economy will provide a further challenge to the airline in the second half.
In the 12 months ended 31-Mar-08, Dart Group reported a 23% year-on-year increase in revenue to GBP429 million, driven by further expansion of its scheduled airline operations. Profit before tax amounted to GBP11.8 million in the period, compared to a loss of GBP3.6 million in the previous corresponding period.
According to Jet2.com CEO, Philip Meeson, the airline has experienced “another great Summer” in 2008, characterised by record high load factors in excess of 90%, improved yields and record profits, as the carrier benefits from its focused cost control measures and a conservative approach to fuel hedging.
Continued focus on ancillary revenues
In FY08/09, Jet2.com plans to continue its focus on ancillary revenue generation, having switched to its own in-house developed reservation system in Feb-08, allowing the company to tailor its system more efficiently and effectively to improve on-line shopping (and ancillary revenue) opportunities.
Retail revenue, in particular online seat assignment, has increased significantly as a result of the new system. The carrier continues to implement and expand its existing ancillary product offering, including the Jet2Plus service and Jet2holidays.com.
Expansion path continues in FY08/09
2007/08 was a year of significant expansion for Jet2.com’s scheduled airline activities, as it added 25 new city and sun routes over the European Summer, with additional capacity implemented on existing ski routes and the Canary Islands programme during the Winter period.
This strategy, of seasonal and tailored expansion to key leisure destinations, has been a successful one for Jet2.com, and is being implemented again in the current fiscal year. It is reminscent of WestJet's successful strategy in Canada and Allegiant's in the US - the two best performing carriers in North America this year (in terms of share price gains).
As part of this expansion, Jet2.com announced plans to increase Manchester-Ibiza frequency to daily in Summer-09 and utilise a larger B757 aircraft on the route twice weekly, providing an extra 608 seats per week. The carrier, which launched Edinburgh-Sardinia service in Aug-08, also announced plans to launch services from Edinburgh to Ibiza, Menorca and Venice in May-09.
Spain is currently Jet2.com’s second largest market after the UK (53.7%), with a weekly capacity share (seats) of 27.5% of the airline’s total network. The airline’s other markets are significantly smaller.
Jet2.com capacity share (seats) by country: Week commencing 22-Sep-08
Source: Centre for Asia Pacific Aviation and OAG
Hedged majority of fuel requirements for next 18 months
In common with other carriers, Jet2.com has sought to offset the impact of escalating fuel costs through hedging strategies. The business has fully hedged its expected fuel requirements for the 12 months ending 31-Mar-09 and has substantially hedged its forecast Summer 2009 requirements, making it one of the better-hedged European airlines.
Turbulent times ahead, but more focused in FY08/09
The Dart Group plans to continue to invest in the development of Jet2.com, with the airline focusing on improving its load factors and ancillary revenue development as the industry tackles a combination of higher fuel prices, a contracting UK economy, and the proposed introduction of an aircraft departure tax to replace the current per passenger based Air Passenger Duty.
With its strong hedging position and with a more focused flying programme, Jet2.com is better placed than in previous years to weather the current storms. However, as the airline enters the European Winter, it will remain cautious of keeping capacity growth in line with demand, learning the lessons from the 2007 European Winter, in which it overestimated passenger demand, resulting in lower than expected yields and load factors.
Vicky Karantzavelou - Wednesday, September 24, 2008