INVESTORS in easyJet will have been well advised to fasten their seatbelts over the past six months. Shares in the budget carrier have soared since they hit a trough of 248.5p in the aftermath of September 11, and shareholders will be sitting on a tidy profit.
But are there signs that the lifejackets under those no-frills seats may soon be required? Competition in the market is becoming increasingly intense, with new entrant bmi baby hoping to grab some market share from its more established rivals.
Fortunately, demand shows no sign of slipping and the market is continuing to grow far faster than the number of planes. EasyJet yesterday announced that passenger numbers were up 39pc on the year, and the number of free seats fell even as routes and services increased.
The company's decision to increase its fleet still further shows that it is serious about maintaining growth rates at similar levels in the future. In addition, industry analysts believe businessmen who have made the switch from first-class luxury to bargain-basement practicality in the face of economic woes are unlikely to switch back quickly.
The only problem on the horizon for easyJet could be the current vicious jump in the oil price. The company does not hedge its exposure to oil, holding to the philosophy that what it loses on the swings, it gains on the roundabouts. Hence it is quite prepared to lose out when prices are high, so long as it can reap the benefits of cheaper oil at other times - as it has done for the past year.
That may be true, but as we enter a period when a barrel of crude nudges ever closer to $30, investors may be concerned over the impact on earnings. At the moment the shares, down 4 at 511p yesterday, offer no dividend, but trade on around 32 times prospective earnings, which is a significant discount to Ryanair.
The oil price conundrum will have a negative impact on the shares in the short-term, but if they can beat the turbulence, they should continue to soar.
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Airline news