EasyJet is turning improved customer service into bundles of cash. The numbers are especially impressive in the context of the millions being lost by many of Europe's legacy airlines on short-haul flights. It also makes a stark contrast with the low-cost rival Ryanair, which has issued two profit warnings since September.
At easyJet, pretax profit jumped by 51 per cent in the year to September 30. It raised its dividend by 56 per cent and declared a special distribution that was larger than the total ordinary payout. Over the last 12 months, shares in Europe's second-largest low-cost airline have doubled, mirroring improvements in its operational performance. Stock rose another 7.5 per cent on November 19.
CEO Carolyn McCall, who joined in 2010 as an aviation novice, has got many things right. She moved the airline's customer service standards up without adding unduly to costs. In the last three years, punctuality has improved by a third, largely because it has left more time in the schedule to turn flights around. Premium fares that allow flexible rebooking have helped to woo business customers, but McCall's boldest move has been to introduce allocated seating. This has made boarding less stressful and increased customer satisfaction. It has also driven up ancillary revenue because more passengers are willing to pay a fee for being able to choose preferred seats.
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Thomson Reuters Starmine data indicates that the British carrier currently trades at a forward price-earnings ratio of 12. That is above the industry's average and roughly at par with Ryanair. Further earnings growth should lead to further share price growth. But having climbed rapidly, easyJet may have now reached cruising altitude.