Jet2's solid growth runway
From its inception in 1983 as Channel Express, flying fresh flowers across the channel, Dart Group’s logistical proficiency and market foresight have seen it evolve into what it is today.
On 17th November 2016, Dart confounded the skeptics who had been focused on the travails of airline peers – EasyJet, Ryanair – and tour operators – TUI, Thomas Cook – by reporting excellent interim numbers and endorsing an 11% upgrade to its numbers for the full year. The key driver for the companies growth continues to be its packaged holiday business, Jet2.com; voted TripAdvisor’s Top UK Airline, it has rapidly become the UK’s third largest package holiday provider with more than 5,000 employees. And with 50% of all flights now having one of Jet2’s holidays attached, the company will be expanding its traditional northern operations to Stansted by Easter 2017, with the new, larger Boeing 737-800s helping to fulfill enhanced demand. Furthermore, their major cost, the price of oil, has been hedged through to 2018 at attractive rates, and the shares remain attractively priced, keeping Jet2 a key holding in our Special Situations service.
The man at the controls
Behind Dart’s success is Philip Meeson, Chairman and CEO. With his 38% stake in his business and signature entrepreneurial spirit, he has a clear track record in identifying changes on the horizon and tapping into genuine growth opportunities. “We could see [around the year 2000] that many of our US courier clients such a UPS were gaining more rights to fly their aeroplanes in Europe”. By May 2001 Dart Group had purchased two Boeing 737-300QC (‘Quick Change’) aircraft which could transform from a 148-passenger to a 16 tonne payload freighter aircraft in 30 minutes. The next year the Jet2.com brand was created as a ‘seat only’ service and in 2007 the package holiday operation was launched. But logical aptitude isn’t the only factor in Jet2’s success. Prior to purchasing Channel Express Philip ran a successful enterprise importing the Citroën 2CV into a roaring 1970’s London. “They were a fun car, a bit of French chic and perfect for London because they had left hand drive so you got in and out on the pavement”. Call it “the Pavement Factor” if you will, but here is a man who really respects his customer and is fully committed to delivering an experience that will get them returning again and again. “The most important person is the customer: find a product that people really like and that’s what sells”.
Investing in excellence
At jet2.com’s outset the plan was to offer reasonably priced flights, with friendly service and some unexpected perks such as no extremely early morning flights, “It is about giving people more than they expect…our evolution into the package holiday business means that we are really looking after people, it’s a real opportunity to excel”.
This is a phrase that crops up often: everything is a chance to excel. Owning the whole holiday experience is their total focus. Operating from eight UK bases, they invest in their own Customer Helpers at airports, with over 300 representatives in resorts. They even run an Emergency Helpline, “we get about 140/150 calls a day, everything you can imagine happens at home also happens on holiday…£750 per person for a package holiday, usually with a family of three or four, is a sizeable spend that people work hard for and look forward to all year”. The shares have been weak in recent months due largely to concerns over the impact of the Brexit vote on consumer confidence and sterling weakness. However, the Special Sits team, for whom Dart is a core holding, believe these worries have been overdone in the context of management’s strong long-term strategy.
A solid growth runway
Investment into the South East at Stansted will include six new Boeings, flying 83 weekly flights to 21 existing destinations. The new aircraft will boost fuel efficiency and add 28% more capacity via an extra 800,000 seats. With a £20m estimated investment in launch costs for Stansted and Birmingham in the second half of 2016, the aim is to break even by FY 2018 and then generate £140-150m per annum of revenue and £8-10m of earnings (EBIT) once the project matures.
Meanwhile, as consumers shy away from eastern Mediterranean locations on security grounds, Dart is well positioned given its bias to the holiday hotspots of Spain (58% of its summer 2016 flights) and Portugal. With oil the largest cost input and the effect of price hedging at a hefty $90, 18 months ago, falling away, we would also expect to see costs fall significantly. We therefore believe there is potential for upgrades to earnings forecasts, with the interims due in November. In the meantime the shares trade on a lowly 8.5x earnings to March 2017.
Philip concludes, “We are always very clear with our investors that we are a long term business. We offer a great holiday experience that encourages loyalty and re-booking and we believe this will deliver good returns for shareholders over time.’’
Our Killik Special Situations Service has access to inspiring brands like Jet2 and has previously given clients access to fund raisings such as Fever Tree, Joules and Hotel Chocolat.
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Click here to visit Jet2’s website.