Jet2 shares sink over 10% on softer FY25 guidance, cost pressures for FY26

Investing.com -- Jet2 (LON:JET2) shares sink over 10% on Wednesday after the airline and holiday operator reaffirmed its profit guidance for FY25, which remains below market expectations. 

The company expects profit before tax to range between £560 million and £570 million, reflecting an 8-10% year-on-year increase. 

This aligns with RBC Capital Markets’ and Visible Alpha consensus estimates (£564m-£569m) but falls short of the broader market consensus of £582 million. 

Morgan Stanley (NYSE:MS) had forecast £621 million, while Barclays (LON:BARC) projected £577 million. The guidance excludes potential gains from asset disposals, including the sale of Jet2’s retired Boeing (NYSE:BA) 757-200 fleet, with further details expected in April.

Winter bookings are in line with expectations, with seat capacity growing 14% year-on-year to 5.1 million. However, the late booking trend observed in summer 2024 has continued into winter. 

Load factors for the season are down 2.2 percentage points, largely due to the timing of Easter, which falls in April instead of March. Pricing remains “competitive,” though Jet2 has not provided an update on year-on-year trends.

For summer 2025, seat capacity is set to rise 8.5% to 18.6 million, with the new Luton and Bournemouth bases contributing about 4 percentage points of growth. 

Forward bookings for April to June are up 7%, with load factors at existing bases holding steady. However, Luton’s load factor remains lower due to its recent launch in November 2024.

Jet2 stated that pricing remains "keen" but positive year-on-year. Package holiday pricing has shown modest gains, while flight-only fares are also trending slightly higher. 

RBC Capital Markets projects package holiday yields to increase 2.5% and flight-only ticket yields to rise 1.6% in FY26.

Jet2 has flagged multiple cost pressures that could weigh on margins in FY26. A 3% employee pay increase takes effect in April 2025, alongside an expected £25 million rise in Employer National Insurance and National Living Wage costs. 

Additional inflationary pressures are evident in hotel accommodation, aircraft maintenance, airport-related expenses, and Eurocontrol charges.

Airbus delivery delays are set to increase operational costs, as Jet2 will need to find alternatives to cover aircraft gaps during peak summer.

Meanwhile, the company faces a £20 million additional expense from sustainable aviation fuel mandates.

To offset some of these pressures, Jet2 has locked in cost certainty through hedging. It is 85% hedged for summer 2025 on both fuel and foreign exchange at beneficial rates and is fully hedged for its 2025 carbon emissions allowances.

Given these cost headwinds, RBC Capital Markets expects a modest ( about 2-3%) downgrade to FY26 consensus PBT estimates, potentially reducing forecasts from about £575-£580 million. Morgan Stanley projects a 1.4 percentage point decline in profit margins for FY26 to 7.1%.

Jet2’s reaffirmed guidance, coupled with rising operational costs and margin pressures, triggered a sharp sell-off in the company’s shares. 

While package holiday pricing remains resilient, investors appear cautious about the impact of inflation and operational challenges in the coming year.