Low cost, lower profit. Ryanair or EasyJet?

During the past couple of months, Ryanair has been on the news for wrong reasons as it had to cancel several flights across Europe due to pilot and cabin crew strikes.

Throughout the years, a company which was overshadowed by Ryanair’s success was EasyJet.

EasyJet is considered as the 2nd biggest airline in Europe with a market share of 6.9% after Ryanair which holds 10.11% of the share. Due to the turmoil currently being faced by Ryanair, the company has just announced that it will have higher costs and lower profits and therefore it is expected that competitors may be taking advantage in the short/medium term.

On a matter of fact, just last Friday, easyJet announced that it is expecting to deliver a Full Year 2018 headline profit before tax of between 570 to 580 million. Passenger numbers for the last 12 months are expected to be 5.4% higher at almost 85m, with total revenue per seat up 6.5% at constant currency. The firm was also optimistic on its outlook, predicting capacity to increase around 10% to roughly 105m seats over 2018/19.

Easyjet can also be considered a great source of dividend with a forecasted yield of around 5.25% (Ryanair does not pay dividend).

Looking at the chart below, we can notice that the price is reaching an important support level at around the area of £1.2 per share (1st Support level). We can also notice that this support level joints nicely to another support (marked in blue) that is part of a trend line formed way back in October 2016.

I am confident that this level will resist as fundamental numbers are improving and technical charts are in our favour.

Furthermore, various technical oscillators are showing oversold positions thereby making it a good entry point.

Should the support level indicated not resist, another support level would be around area £1.1.

As we already said, Ryanair has been facing a lot of pressures and has now seen its price fall by 12% following cancellation of 18,000 flights and the decrease in their profit forecast. The share price continued its decline after the Civil Aviation Authority said that Ryanair had misled passenger about their rights over cancellations. It goes without saying that the PR disaster that the firm faced will surely put more cost pressures on Ryanair over the months to come.

Looking at the chart we can see that yesterday the price has opened with a gap below the previous trend line and there seems no way for stopping this.

When analysing both companies, I think it is a better off strategy going on with Easyjet rather than Ryanair as the latter will surely provide its investors with a lot of downward pressure for the months to come.

0 - Comments