Jet2 Research Report
An exceptional leisure travel business trading at a highly attractive valuation given its long-term growth potential.
Executive summary
Jet2 plc (JET2) is a UK leisure travel business listed on the Alternative Investment Market (AIM) of the London Stock Exchange. It has two key subsidiaries: Jet2.com, a short-haul airline operating flights between the UK and various European and North African destinations; and Jet2holidays, the UK's largest tour operator, offering package holidays to locations served by the airline.
Both Jet2.com and Jet2holidays have built up a very strong reputation with customers, evidenced by excellent ratings on review sites such as Feefo and Trustpilot, and frequently ranking highest in consumer surveys. Jet2.com's reputation is particularly impressive considering it's a low-cost airline, with peers such as Ryanair, easyJet and Wizz Air having customer ratings ranging from mediocre to terrible.
To give you some brief figures, Jet2.com carried 17.72m passengers in the year ended 31 Mar 2024 (FY24), and operated with an average load factor of 89.81%. Of this total, 12.11m were flying as part of a Jet2holidays package holiday, and 5.61m were flight-only passengers. The vertical integration of the two businesses leads to some exceptional unit economics, with total revenue per passenger of £353.01 in FY24, and operating and net profit per passenger of £24.16 and £22.53, respectively.
Compare this to Ryanair, the most operationally efficient of Jet2.com's airline peers, which generated total revenue, operating profit, and net profit per passenger of £60.76, £9.31, and £8.67 over the same period. Or a pure play online travel agent like On the Beach, which generated total revenue, operating profit, and net profit per passenger of £37.71, £6.24, and £5.94 in the year ended 30 Sep 2024.
Jet2's total revenue has grown at a 16.1% CAGR since FY19 to hit £6,255.3m in FY24, while its net income has grown at a 23.3% CAGR to hit £399.2m. The excess growth in net income is due to the company benefiting from rising rates of interest earned on customer deposits.
The company's shares currently offer an earnings yield of 13.5%, free cash flow yield of 23.3%, and trade at a price to book value of 2.1 based on the FY24 financials. The near-term economic outlook presents some headwinds that are likely to impact performance over the next couple of years, but I feel the current valuation adequately compensates investors for assuming this risk.