easyJet's McCall signs off with share price surge

When Carolyn McCall climbed into the easyJet cockpit in July 2010, the airline's new chief executive faced a multitude of problems. Top of the list was improving the carrier's poor punctuality record, as well as soothing relations with the airline's founder and major shareholder Stelios Haji-Ioannou.

The share price at this point was hovering at below £4, where it had been stuck for more than two years. Seven years later, and with McCall about to swap easyJet for the CEO role at ITV - she steps down next week and leaves at the end of December - the low-cost carrier is flying a record 80 million passengers a year with its highest ever annual load factor of 92.6%.

Shares peaked at 1,910p in April 2015 and currently stand at 1,369p - a rise of 250% on the day that McCall started in the top job. This includes today's 7% improvement as easyJet cheered investors with a better-than-expected outlook for the current year, having claimed a "strategic advantage" over its rivals.

The airline will also be hoping to benefit from more favourable conditions after a challenging year for the airline industry as a whole, with fares under pressure due to competition and overcapacity. For easyJet, there was also a full-year currency impact of £101 million to contend with.

Today's pre-tax profits for the year to September 30 of £408 million were 17.3% lower than a year earlier and slightly below the forecast of broker Investec Securities.

But analyst Alex Paterson is more than encouraged by guidance on revenue per seat in H1, which is forecast to rise by low to mid-single digits due to the timing of Easter and the exit of capacity from Monarch and Air Berlin.

He said: "We look for a 2% decline over the full year and this looks too conservative given the H1 guidance, particularly as forward bookings are ahead of last year at 88% for Q1 and 26% for Q2."

With fuel hedging also better than anticipated, Paterson said there was now upward pressure on his forecasts. He has pledged to review his 1,400p target price and 'hold' recommendation.

Over at UBS, analyst Jarrod Castle has a buy rating and price target of 1,465p.

However, he warned that easyJet's deal to acquire Air Berlin's Tegel airport operations for €40 million (£35.5 million) may be a drag on the shares.

Subject to regulatory approval due next month, the acquisition will result in easyJet entering into leases for up to 25 A320 aircraft and offering employment to up to 1,000 former Air Berlin crew members.

Based on current assumptions, easyJet expects to incur headline losses of around £60 million on its activities at Tegel in the 2018 financial year.

It's likely that investors will also be concerned about how the change in leadership will impact the group's performance. McCall is due to leave the airline at the end of this year, having earlier handed over the top job to TUI Group deputy CEO Johan Lundgren on December 1.

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