EasyJet upgraded as strong travel demand meets profit-boosting efforts

RBC Capital Markets upgraded EasyJet PLC to 'outperform' with a price target of 650p, citing expectations that the airline will exceed consensus for FY26 with a headline profit before tax of £791 million, 3% above consensus. The upgrade is driven by strong travel demand, favorable foreign exchange and fuel trends, profit-improvement initiatives like 'upgauging' to Airbus A320neo/A321neo aircraft, reduced winter losses, and growth in the Holidays business. EasyJet's attractive valuation, trading at approximately 7.4x forecast earnings, also supports the positive outlook.

Analysis

RBC Capital Markets has upgraded EasyJet PLC to 'outperform' and increased its price target to 650p from 570p, signaling confidence in the airline's ability to surpass consensus expectations for its 2026 financial year. The broker forecasts a headline profit before tax (PBT) of £791 million for FY26, approximately 3% ahead of current consensus, driven by a confluence of positive factors including beneficial foreign exchange and fuel price trends. Key internal profit-improvement initiatives contributing to this outlook are the reduction in winter losses, the transition to more cost-efficient Airbus A320neo and A321neo aircraft through 'upgauging', and the continued expansion of its Holidays business segment. This optimistic forecast is underpinned by robust travel demand, evidenced by strong website traffic, year-on-year growth in travel spending indicated by Barclaycard data, and solid booking figures, with 80% of Q3 and 42% of Q4 capacity already sold and tracking ahead of the previous year. RBC notes that its 14% PBT growth forecast for FY26E might be conservative, given the potential for greater contributions from these initiatives and sustained fuel tailwinds. Furthermore, EasyJet's current valuation at approximately 7.4 times forecast earnings is considered attractive, with RBC’s target implying an 8.3x multiple; sustained profit progress beyond FY26E towards medium-term targets could exert upward pressure on these multiples.

Key Decisions for Investors

• Investors may consider the upgraded 'outperform' rating and 650p price target from RBC Capital Markets as indicative of potential upside, supported by strong travel demand, operational improvements, and growth in the Holidays segment.
• Careful monitoring of forward bookings, the success of winter loss reduction strategies, the impact of fleet upgauging to A320neo/A321neo aircraft, and the sustained growth of the Holidays business is warranted, as these factors are key to EasyJet achieving its £791 million PBT forecast for FY26.
• The current valuation at approximately 7.4x forecast earnings presents a potentially attractive entry point, especially if EasyJet demonstrates continued profit progress beyond FY26E, which could lead to an upward re-rating of its earnings multiples as suggested by RBC.