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08 January 2021

Jet2 Ready for Lift Off

The Travel and Leisure sector is very much a race to the bottom: who can charge the least per seat? Who can build hotels most quickly in the newest, most in-demand locations? Who provides the best value for money? Overall, it is a fiercely competitive industry with high fixed costs which has caused the sector to struggle during the Coronavirus pandemic.

Limitations on international travel and consumers being less willing to take the risk of travelling both hurt the ailing sector. While the airline industry has taken its fair share of punches from the pandemic, it is important to keep in mind its struggles before the pandemic even began - Coronavirus is only hurting them further.

The introduction of vaccines, the lifting of national lockdowns and more lenient tiered systems are expected to cause a reversal in this trend as pent-up demand causes a surge in bookings. Of the companies that may benefit from this is Jet2, the British airline company known for its cheap fares. Shares in Jet2 are up 366% since their March low of £305.80 per share, an astonishing feat, outperforming even a significant portion of technology stocks over the same period. Recently, the company reported an operating loss of £111.2 million in the first half of 2020 which is indicative of the fall in demand for flights and holidays. The firm, however, is still displaying a strong financial position with cash of c£632m, which puts it in a good position to capitalise on the inevitable resurgence in air travel.

On 2nd December 2020, it was announced that the UK was the first country globally to approve the Pfizer and BioNTech vaccine for widespread rollout. Subsequently, the UK purchased 40 million doses of the vaccine, which displays a 95% efficacy following two doses. Jet2 is adopting growth strategies which will position it strongly for the expected post-Coronavirus recovery. On 11th November 2020, the company announced its tenth operating location to be Bristol Airport – operational from 1st April 2021, this will enhance their customer base in the South West of England. The company is displaying a reasonable liquidity position; from the first half of 2020 to November 15th, the company’s cash was declining by around £50m per month. Therefore, assuming earnings do not add to the cash position, this provides an estimated cash liquidity period of 12 months. Jet2 is staying ahead of the competition by not following the crowd. Both Ryanair and easyJet have introduced extra costs for travellers wishing to take a second item of luggage on-board, a decision that will likely anger passengers, if not surprise them. Jet2 on the other hand, will keep this free of charge. Some will argue that from a business point of view this does not make sense, especially given the lack of revenue during the pandemic. However, given that low-cost airlines are known for their cheeky additional costs, this is likely to be welcomed by many, helping Jet2 secure as much of the post-pandemic rush as possible.

With people locked into their homes for months on end, and travel restrictions reducing the reasons for people to take holidays away from work, the pent-up demand is expected to be immensely high. The savings from a reduction in commuting costs may leave some with a nice pot of money, with which international travel may be the first port of call. People may wish to travel to multiple destinations while maxing out their annual leave from work and will look towards budget airlines such as Jet2 to maximise their value for money.

Please note that this communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned.
Jet2 Ready for Lift Off
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