JET2 LN

Two recent headlines knocked the stock back. First, the AGM statement in early September flagged a less certain consumer, very late bookings and a small winter capacity trim (5.8m seats down to 5.6m); guidance was steered to the low end of the range. The shares dropped sharply on the day. That weakness is real—but context matters: Jet2 had just reported record FY25 results in July, and late booking patterns have been a feature of this cycle across travel, not a Jet2-specific problem. Capacity reductions into winter are a sensible yield-protection move in a shoulder season.

More importantly, the structural setup around supply and execution still tilts in Jet2's favour. FY25 flown passengers grew 12% to 19.8m at an 88.7% load factor; package holiday customers rose 8% to 6.58m and still account for roughly two-thirds of passengers—down from the high 60s/low 70s mix in stronger years because flight-only grew faster in a late-booking environment, but the higher-margin package engine remains the core. (Jet2's own KPI table shows 66.5% package mix for FY25; in some seasons it has run north of 70%.)

On service and brand strength the data continue to be excellent. In July the UK Customer Satisfaction Index ranked Jet2holidays among the top UK brands across all industries and best in tourism, with Jet2.com also leading its category. That is consistent with a decade of Which? Recommended Provider recognition. This service gap is the glue that keeps repeat rates and direct distribution high, lowering acquisition cost per booking and allowing the company to pass through supplier cost increases with less churn.

Jet2's founder and long-time steward, Philip Meeson (a former aerobatics pilot, now succeeded by a seasoned management team led by CEO Steve Heapy), locked in a large, pre-inflation order for Airbus A321/A320neo family aircraft, with deliveries stretching to 2031 and options/purchase rights that could take the total to as many as 146. Critically, Jet2 selected CFM LEAP-1A engines—not Pratt & Whitney's GTF—sidestepping the multi-year GTF grounding that continues to constrain a number of European peers. In contrast, Ryanair has grappled with Boeing delivery delays and had to temper near-term schedules. Put bluntly: supply will be tight for years; Jet2's future gauge (A321neo) is the most sought-after narrowbody in the market; and its engine choice looks like the right one.

This creates an asset conversion angle. Today Jet2 carries billions of interest-earning cash (customer deposits plus own cash) as future holidays are booked. As these Airbus deliveries arrive (management added seven more A321neos in FY25 and expects a steady cadence into the late 2020s), capital will convert into aircraft acquired at pre-inflation economics, supporting unit costs and capacity where rivals are constrained by OEM and engine bottlenecks. Airbus has warned that delivery delays across the industry could persist into 2027–28; that hurts the industry's ability to add capacity and helps pricing hold up. Jet2, with signed slots, is relatively well positioned to grow into that tightness.

At FY25 Jet2 reported operating profit of £446m (6.2% margin), with package holiday pricing +5% to £873 and non-ticket revenue per sector +6%. A new Retail Operations Centre (ROC) is now fully live; unsurprisingly, in-flight retail spend per passenger rose 13% thanks to better stock and product mix. The company continues to lean into ancillaries and vertically integrate smartly where it improves control and customer experience. Two new UK bases—Bournemouth and London Luton—went live, extending reach such that 85% of the UK population is now within a 90-minute drive of a Jet2 base. These are not vanity flags; bases feed higher direct mix, better network density and lower per-unit overhead.

This is the crux of the opportunity. On conventional numbers, headline EV today is tiny because cash dwarfs debt. Using FY25 year-end figures and a mid-October share price:

• Market cap ≈ £2.6–2.8bn; debt (borrowings + leases) £1.138bn; cash and money-market deposits £3.156bn → headline enterprise value about £0.6–0.7bn. On FY25 EBIT of £446.5m and a 25% tax rate (NOPAT ≈ £335m), that implies ~2× EV/NOPAT. That looks absurdly cheap, and it is—because customer prepayments are part of that cash pile.

A more conservative way, which I prefer for seasonal businesses, is to use Own Cash (ex-deposits) as the cash credit. With Own Cash of £1.097bn, adjusted EV is ~£2.7bn, equal to ~8× EV/NOPAT. Still undemanding for a #1 package holiday franchise earning double-digit pre-tax margins.

There's also a middle ground that gives partial credit to the float economics. Jet2 received £2.059bn of payments in advance of travel as at 31 March 2025, and management explicitly notes there are no restrictions on the use of customer deposits. If we treat half of this seasonal float as quasi-equity (reflecting cyclicality and protection via ATOL escrow mechanics at the customer level), adjusted EV drops to ~£1.7bn, or ~5× EV/NOPAT. On a simple P/E the shares trade ~6× trailing EPS, which triangulates to the same value stock in a growthy niche conclusion.

First, the model is integrated and higher-quality than a pure airline. Packages bundle flights, hotels, transfers and assurance; they carry higher absolute margin per passenger and reduce revenue volatility versus seat-only. Even with late bookings in FY25, package volumes grew, prices rose 5% and margins held. Second, interest income on customer cash is meaningful in a 5% bank-rate world: net finance income rose to £121m in FY25, more than offsetting some unit cost inflation. Third, Jet2's customer metrics are consistently top-quartile; that shows up in repeat rates, lower refunds/chargebacks and stickier direct channel share. Finally, fleet renewal into A321neos supports a multi-year unit cost and product upgrade while the market remains supply-constrained by engine and OEM bottlenecks.

The profit caution in September highlights the real near-term risk: very late bookings compress visibility and can pressure yields in shoulder months. If the UK consumer stays shaky and weather is unusually good at home, pricing gets tougher at the margin. Winter 2025/26 capacity has already been trimmed to protect yields; that is the right instinct, but it caps upside in the near term. On the cost side, hotels (wages/food/energy) and airport/ATC charges continue to inflate; mix helps, but there's a ceiling to pass-through in a soft consumer tape. And while Jet2 dodged the GTF issues by picking CFM, Airbus has warned delivery delays could persist for several years; that could push the capex and growth cadence to the right (a negative for unit costs, a positive for industry pricing). Geopolitics (wildfires, strikes, ATC meltdowns) also remain a background hazard to any leisure airline.

I look at a company that just put up record revenue and profits, is buying back stock, carries over a billion of its own cash, and sits on a pre-inflation narrowbody order with the right engine choice at a time when competitors are chronically short of lift. Ryanair's Boeing delays and Wizz's GTF groundings illustrate the environment: supply is tight, and will be tight for years. Jet2's franchise strength—distribution, service, integrated product, and now 85% UK coverage with Luton and Bournemouth—should keep the package engine humming even if the consumer trades down in star rating or board basis. The in-house Retail Operations Centre is already lifting onboard spend; there's more to do with ancillaries and digital merchandising.

I don't need heroic assumptions. Take FY25 as a base. If FY26 lands near the low end of the company's post-AGM steer, you're paying ~6× earnings and ~8× EV/NOPAT on a conservative cash-credit. Give even partial credit to the float as a structural feature of the model and you're back to ~5× EV/NOPAT, with a balance sheet that can fund growth and buybacks simultaneously. The late-booking cycle will normalise at some point; when it does, the street will go back to paying for the underlying quality: a category-leading package holiday operator with better-than-airline economics, an advantaged fleet pipeline, and a history of conservative guidance and over-delivery.

European leisure carriers with weaker service scores and more pure-airline exposure are on similar or higher multiples with worse balance sheets. The reason Jet2 screens cheaper on headline EV is precisely because of the deposits; ignoring them entirely understates EV, but treating them as restricted cash overstates it. The truth is in between—and even there, we are paying a mid-single-digit multiple for a franchise that just earned an 8.3% pre-tax margin and is buying in 9–10% of its cap in under a year.

This is a high-quality, cash-rich, customer-led leisure travel platform that the market has temporarily put in the penalty box over a very late booking cycle and winter capacity trim. On my numbers the stock is cheap even after giving conservative treatment to customer deposits; if you afford any value to the float, it's outright deep value. Management is doing the right things—protecting yields, expanding high-return bases, upgrading fleet at pre-inflation economics, and returning capital. I'm a buyer here.