EasyJet shares a 50% drop since the start of the year, but could it take off?

EasyJet shares a 50% drop since the start of the year, but could it take off?

The easyJet [EZJ] The share price has more than halved this year as pandemic turmoil gave way to a summer of discontent that saw thousands of flights cancelled.

The low-cost airline’s stock fell to a 10-year low of 276.87p on October 3, before recovering to its current level of around 300p – although this is still a far cry from pre-pandemic levels of more of 1,200p.

The company avoided releasing guidance ahead of its year-end business update on October 13, but analyst estimates currently point to a loss of around £127m for the 12 months to the end of September. This would nonetheless represent a significant improvement on the overall pre-tax loss of £1.14billion in 2021. Focusing on the positives, CEO Johan Lundgren told the Mail on Sunday: “We will have a profitable summer, but the annual results are another thing”.

So, after a successful summer and signs that the airline industry may be turning a corner, will the outlook that accompanies Thursday’s annual update offer investors reason to be joyful?

Pandemic woes replaced by a summer of discontent

The Luton Airport-based airline suffered huge losses in 2020 when it grounded its fleet during the UK’s first Covid lockdown. Stock sales and loans helped keep the company afloat through a second summer of travel restrictions in 2021. Then, as airlines expected to rebound in 2022, the industry was hit by a new wave of travel disruption.

The war in Ukraine has contributed to soaring fuel costs, while strikes and staff shortages have led to canceled flights and scenes of chaos at some of Britain’s main airports, which have struggled to cope with an increase in the number of passengers. After an Easter disruption, easyJet cut 10,000 flights from its summer schedule in July.

Prior to the difficult summer of this year, easyJet’s finances were improving. For the third quarter – the three months to the end of June – the airline reported total group revenue of £1.76bn, up from £213m a year ago, thanks to a increase in flights and number of passengers. This helped the company reduce its overall quarterly pre-tax loss to £114m, from £318m in the third quarter of 2021.

The airline flew 22 million passengers in the third quarter, down from about three million in the year-ago quarter, while its planes flew at 87% of 2019 capacity in the quarter, from 16% a year earlier. early. This figure is expected to increase to 90% in the fourth quarter.

That said, costs have also increased. Overall costs in the third quarter increased to £1.87bn from £531 in the third quarter of 2021, mainly due to increased flights but also partly due to ‘operational challenges’ which resulted in £133million in disruption costs, according to a statement from the company.

eyes on the horizon

While the full-year update will reveal the extent of this summer’s travel disruption to easyJet’s bottom line, investors are likely to be just as interested in what bosses are saying about the outlook. As a low-cost airline, will easyJet stand to benefit as passengers seek savings during the cost of living crisis? Or will a large number of consumers cut back on air travel entirely? The answers to these questions can help determine the direction of easyJet’s share price in the short term.

Analyst sentiment certainly appears to be on the upside. According to data collected by the Financial Times, of 19 analysts offering a rating on easyJet in October 2022, six rated the shares as a ‘buy’, eight thought they would ‘outperform’, three viewed them as a ‘reserve’, one said they would “underperform”, and one rated them as “sold”. Within this group, 15 analysts offering price predictions had a 12-month median price target of 550p, representing an increase of 86.8% from Friday’s closing price of 294.40p.

With shares only slightly above 10-year lows, it will be interesting to see how the market reacts after easyJet releases its year-end trading update at 7am on Thursday October 13. .

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