Airline travel was decimated by the pandemic. Most of the market leaders saw their stock prices slump as flying hours decreased to near zero. easyJet (LSE: EZJ) was no different and saw its stock fall over 60% between February and March 2020.

In 2022, even though flying hours have drastically improved, easyJet shares are still down 41% year-to-date. Over a 12-month time span, the shares have fallen 47%. I think this could be a prime opportunity for me to buy the stock at a beaten-down discount. Let’s explore why.

Encouraging results

In easyJet’s Q3 2022 results, it reported some strong figures. Although the group posted a loss of £114m, it managed £1.7bn in revenue. For context, for the same period in 2021, group revenue was just £213m, highlighting the impressive recovery. Its losses also shrank by £200m from Q3 2021.

Aside from growing revenues, one of the most encouraging metrics I saw was the decrease in debts. The airline sector is notorious for being saddled with high levels of debt after the pandemic, with players like IAG still sitting on over £8.5bn in debt on its balance sheet. easyJet, however, has a modest £200m debt, down from £600m in Mach 2022. With interest rates on the rise, it’s very encouraging to see the group trimming its borrowings.

Global passenger traffic is also still recovering. The airline reported that it’s now operating at 87% of FY19 capacity, which is very reassuring. It’s expected that in 2022, over 3.5bn passengers will board flights, up from just 1.8bn in 2020. This should help easyJet increase its top-line revenues and drive itself back towards profitability.

Not out of the woods yet

There are still a few risks that easyJet must overcome. For starters, the Russia-Ukraine crisis has sent oil prices skyrocketing. Although easyJet has announced that it has 83% hedged fuel for Q4, rising costs are something it will have to contend with in the future. That’s especially so considering inflation is showing no signs of slowing down.

In addition to this, the cost-of-living crisis (also caused by red-hot inflation) means workers are taking strike action. The problem is that if easyJet doesn’t find extra cash for wages, then strikes will continue and operational efficiency will be greatly hindered. However, if it does agree even a small increase in wages, it will have to shell out millions in extra costs as it employs over 13,000 people.

Why I’m buying

For me, easyJet is a prime example of a good quality stock beaten down by Covid-19 and inflation-related market sentiment. It has decreasing debts, rising revenue, and passenger footfall is set to keep rising in the near future and beyond. All of these factors signify to me the stock could surge in the near future. Yes, rising costs still pose a risk, however, the hedged fuel serves to mitigate this in the short term. For those reasons, I’m looking at adding easyJet shares to my portfolio today.

The post I think easyJet shares are about to surge! Here’s why appeared first on The Twelfth Magpie.

More reading

• Could now be the time to buy great UK shares at bargain prices?
• easyJet shares are up 40% in a month. Here’s why
• Up close to 50% in a month, what’s next for the easyJet share price?
• The easyJet share price is up 49% in a month. What on earth’s going on?
• At £5, could the easyJet share price still be a long-term bargain?

Dylan Hood has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The past few years have been extremely turbulent for airlines around the world, as pandemic restrictions forced customers to stay at home. These companies experienced huge losses, and their share prices were decimated. An example is easyJet (LSE: EZJ) shares, which have sunk around 70% from their pre-pandemic price.

Despite the pandemic starting to subside, the past year has been no more pretty, with the easyJet share price falling 45%. Factors such as fuel price rises, and inflationary pressures have driven this descent. However, despite easyJet looking cheap at its current price, I am more tempted by another airline stock. 

Why am I avoiding easyJet shares?

The main problem in the aviation industry at the moment is the current staff shortages. This has been driven by the huge number of redundancies that were made throughout the pandemic. Flight caps have been added at both Gatwick and Amsterdam, two of easyJet’s most significant operating airports. 

easyJet now expects around 87% capacity compared to 2019 levels in the three months to the end of June. This is down from previous forecasts of 90%. In the following quarter, this should increase to 90%, down from previous forecasts of 97%. This has led to the investment bank Peel Hunt predicting that the airline will now report a loss for the financial year. 

There are still many positives with easyJet shares, however. For instance, the company is currently 71% hedged for fuel in the second quarter of FY2022 and 20% hedged for fuel for FY2023. Due to soaring prices of oil, this should help reduce operating costs.

Meanwhile, despite disruption, demand still remains extremely strong, with bookings for July and September in line with 2019.

However, easyJet has dealt with the recent disruption extremely poorly, cancelling the highest number of flights out of any airline. For this reason, I believe there are better options in the aviation industry. 

My favourite airline stock 

Due to the current uncertainties with UK airlines, I am more tempted by international carriers. Southwest Airlines (NYSE: LUV) is the world’s largest low-cost carrier. It has also recovered well from the pandemic, which is why I am very tempted to buy right now. 

For example, in Q2 it expects revenues to be 10% higher than the same period in 2019. In addition, profitability has returned and earnings per share are expected to rise to around $2.67 this year, before soaring to $3.84 per share in 2023. Such strong profitability differentiates Southwest to easyJet.  

Finally, unlike other US airlines, Southwest hedges a large percentage of its oil. This is expected to lead to cost savings of $1.2bn this year. It also means that Southwest is expected to report Q2 operating margins of 15.5%, far larger than other airlines. 

Although inflationary issues may prevent consumers from travelling as much, Southwest seems one of the most robust candidates in the airline industry. For this reason, I am very tempted to buy its shares in the next few weeks. 

The post I’m avoiding easyJet shares and buying this top-quality airline stock instead appeared first on The Twelfth Magpie.

More reading

• Could now be the time to buy great UK shares at bargain prices?
• easyJet shares are up 40% in a month. Here’s why
• Up close to 50% in a month, what’s next for the easyJet share price?
• The easyJet share price is up 49% in a month. What on earth’s going on?
• At £5, could the easyJet share price still be a long-term bargain?

Stuart Blair has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

As the travel industry makes a comeback, I would’ve expected airline stocks to take off. So, it’s odd to see easyJet (LSE: EZJ) shares doing so poorly, as it’s down 30% this year. So, here’s why the easyJet share price is crashing.

A dissipating tailwind

On Monday, easyJet released its summer trading update. The good news was that, “Demand for travel has returned“, according to CEO Johan Lundgren. Passenger occupancy for the months of April and May was seven times higher than last year, with expectations for capacity to reach 87% of pre-pandemic levels this quarter. Unfortunately, that’s where the good news ends.

Despite the upbeat tone, investors punished easyJet stock as management lowered its initial guidance. Although 87% capacity of 2019 levels is still high, this is lower than the 90% initially guided. The firm’s outlook for Q4 also saw a decline to 90% of 2019 levels. Additionally, higher operating costs soured investor sentiment even further.

Not so easy

Pent up demand and the lack of airport staff have led to chaos at British airports. Gatwick Airport, easyJet’s base, has announced daily flight caps as a result. This is part of the reason why the FTSE 250 firm has had to lower its guidance, as growth in passenger numbers hit a ceiling.

Gatwick Airport normally operates 900 flights a day in August. But it’s capped its daily operations to 825 flights a day in July, and 850 flights a day in August for this year due to staff shortages. This has led to delays and flight cancellations.

Many analysts are predicting that these delays and cancellations could cost easyJet up to £200m. Nonetheless, management believes that its high frequency network allows for most passengers to be rebooked onto flights within the same day, thus preventing a big loss in revenue.

Turbulence or engine failure?

Whether this chaos will have a devastating impact on the company’s top line will be revealed in its next trading update. What I do know, however, is that the board is bullish about the airline’s long-term growth. It recently announced a mammoth order for 56 Airbus A320neo aircraft, and converted its initial order of 18 A320neos to the bigger A321neos. These aircraft are more fuel efficient and provide bigger capacity. As such, I’m expecting the Gatwick-based firm to reduce its operating expenses in the long term, and reverse its declining profit margins.

That being said, I’m worried about the easyJet share price in the short-term. High fuel costs and rising interest rates present heavy economic headwinds, with analysts bracing for a potential recession. This would undoubtedly impact sales figures.

Fortunately for the firm, it’s got sufficient cash (£3.5bn) to covers its debt (£3.1bn). However, it goes without saying that its debt-to-equity ratio is still disproportionately high, at 126.4%. On that account, another couple of bad quarters may hinder the budget airline’s return towards profitability.

Nevertheless, easyJet’s business model isn’t my cup of tea. Its history of low-quality earnings paired with high levels of uncertainty makes it a risky investment for me, hence why I won’t be investing in easyJet shares. Instead, I’ll be investing in other growth stocks that have better profit margins.

The post Here’s why the easyJet share price is crashing appeared first on The Twelfth Magpie.

More reading

• Could now be the time to buy great UK shares at bargain prices?
• easyJet shares are up 40% in a month. Here’s why
• Up close to 50% in a month, what’s next for the easyJet share price?
• The easyJet share price is up 49% in a month. What on earth’s going on?
• At £5, could the easyJet share price still be a long-term bargain?

John Choong has no position in any of the shares mentioned at the time of writing. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

However, the stock has shown signs of potential in recent times. And since early March the easyJet share price is up over 25%. So, will this upwards trajectory continue? Or should I be steering clear of it? Let’s explore.

Strong travel expectations

One positive for easyJet is that it should be able to capitalise on rising demand as more countries continue to remove travel restrictions. Examples of this include Italy, which recently dropped its ‘state of emergency,’ while from early May, Greece will join the growing list of restriction-free European countries. As a result, easyJet recently announced that demand for summer bookings over the past six weeks has exceeded that of the same period in 2019. Given the struggles it has experienced through the pandemic, this is great news for the firm.

On top of this, easyJet recently posted some solid results. The firm has managed to reduce its net debt from £900m to £600m, while March saw 80% passenger capacity compared to March 2019. It also stated that 64% of fuel for the second half of the year is hedged at $571 per metric tonne, partially offsetting the impact of current rising fuel prices. These results show the business is moving in the right direction post-Covid, as it edges closer to full capacity in the near future. As a potential investor, these are pleasing signs. 

easyJet concerns

However, rising fuel costs should still be of concern to easyJet. While hedging 64% of fuel may provide some short-term protection, the increase we’re witnessing will still have a big impact on the business. Should this eat into revenues, I’d expect to see a fall in the easyJet share price.

And it’s not just the cost of fuel that’s on the rise. With inflation soaring, people are seeing a sharp cost of living increase. While the business is experiencing high demand, a continuation of the rise could see future bookings impacted. This could have negative connotations for the firm and its stock.

The disruptions easyJet has recently been facing will also impact it. In some bases, up to 20% of staff have been off work due to rising Covid-19 infections. And earlier this month, it cancelled over 200 flights in one weekend. This is expected to continue to later into the year. When considering buying easyJet shares, this is a concerning factor.

So, where is the easyJet share price going next?

Where the easyJet share price goes next depends on a few factors. If it continues with its strong progress post-Covid, and if demand continues to rise, I think easyJet could have a strong finish to the year. However, despite the progress it has made, I see it struggling in the months ahead. Rising fuel costs, inflation, and Covid-19 cases could see the firm suffer. And as a result, I won’t be buying the shares just now.

The post Where’s the easyJet share price going next? appeared first on The Twelfth Magpie.

More reading

• Could now be the time to buy great UK shares at bargain prices?
• easyJet shares are up 40% in a month. Here’s why
• Up close to 50% in a month, what’s next for the easyJet share price?
• The easyJet share price is up 49% in a month. What on earth’s going on?
• At £5, could the easyJet share price still be a long-term bargain?

Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

That being said, more and more countries are lifting their covid-19 travel restrictions as the world returns to normality. This should help easyJet shares rise throughout 2022. Is now the right time for me to buy some cheap shares? Or should I pass up on the UK airline giant? Let’s take a look.  

Trading updates

The firm’s latest results showed that for the three months to 31 December 2021, revenues rose to £805m, up from just £165m for the same period in 2020. This was to be expected, but it does highlight the large-scale recovery the firm has seen since the worst parts of the pandemic.

easyJet is appealing to customers who are looking for cheap budget holidays. And the airline has announced it will be releasing a number of such holidays in an effort to drive up occupancy of its planes. This should help drive up revenues in the near future and should prove popular as we approach the summer holiday season.

A final positive for easyJet shares is the global outlook for passenger traffic. As my fellow Fool Charlie Keough mentioned, global passenger volume is expected to reach 3.4bn in 2022. This is almost double the passenger numbers seen in 2020, which is great news for easyJet. With it offering cheap deals, it could set itself aside from the competition, capitalising on these large numbers.

Headwinds for easyJet shares

While there are certainly positives for the firm, there are also some big risks ahead of it. Firstly, the dreadful events linked to the Russia-Ukraine war have led to disruption and international travel uncertainty. In addition to this, the price of oil has skyrocketed to well over $100 a barrel. This will filter down into easyJet’s fuel costs, reducing margins and placing pressure on revenues. I struggle to see how the shares will climb in this uncertain landscape.

In order to mitigate this risk, easyJet has announced that it has 60% hedged fuel for the current financial year, ending 30 September 2022. While this gives me some confidence, rising fuel costs are still a big worry in my opinion.

What I’m doing now

While the current share price drop does offer me a chance to grab some cheap shares, I think the risks outweigh the positives for the firm. It has experienced encouraging results and is set to benefit from increased footfall. However, I can’t help but worry about rising fuel costs and international travel issues. In my eyes, easyJet shares will struggle to overcome these risks in the near future. As such, I won’t be adding the shares to my portfolio today.

The post easyJet shares fell over 7% yesterday: should I buy now? appeared first on The Twelfth Magpie.

More reading

• Could now be the time to buy great UK shares at bargain prices?
• easyJet shares are up 40% in a month. Here’s why
• Up close to 50% in a month, what’s next for the easyJet share price?
• The easyJet share price is up 49% in a month. What on earth’s going on?
• At £5, could the easyJet share price still be a long-term bargain?

Dylan Hood has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The figures

Five years ago, the easyJet share price was around 1,044p. With £1,000, I would have been able to buy around 96 shares. Since this date, the share price has declined by nearly 40%. Therefore, my investment would only be worth £606 today, a fairly poor return, and far worse than the FTSE 100 return of nearly 5% in the same period.

Nonetheless, although dividends are no longer being paid due to the pandemic, easyJet used to offer large shareholder returns. Between 2017 and 2020, the firm paid dividends worth 197.2p per share. With 96 shares, this would equate to shareholder returns of £189.30. Therefore, a £1,000 return five years ago would total around £795 today, a loss of £205.

The future for easyJet shares

Due to the effects of the pandemic, the past five years have clearly been very negative for the airline, despite the fact that it has outperformed some others in the industry. Such a severe drop in the share price therefore seems justified. In fact, the company’s FY21 earnings were a loss before tax of over £1.1bn. But things are starting to look slightly more positive.

In fact, bookings for the second half of this financial year are ahead of pre-pandemic levels. And in the fourth quarter of this year, the firm expects that demand will return to near pre-pandemic levels. A full recovery is expected by 2023. If these forecasts are correct, I feel that this could result in significant long-term upside potential for the easyJet share price. But there is a big ‘if’, especially as the pandemic continues to cause such high levels of uncertainty.

Despite this uncertainty, easyJet looks financially strong, having £4.4bn of liquidity.  Hopefully, this will allow it to capture more opportunities. In fact, it has already obtained additional slots in Lisbon, Porto, and Gatwick. This is ahead the expected surge in demand later this year. After a couple of years of disruption, I’m also confident that demand for holidays will be strong later this year, and low-budget airlines will be a prime beneficiary.

As such, although issues such as inflation, high oil prices and coronavirus will certainly not make it easy, I feel that easyJet may finally be able to launch its recovery in 2022. The next five years seem more promising than the past five. This tempts me to buy easyJet shares.

The post If I’d invested £1,000 in easyJet shares 5 years ago, how much would I have now? appeared first on The Twelfth Magpie.

More reading

• Could now be the time to buy great UK shares at bargain prices?
• easyJet shares are up 40% in a month. Here’s why
• Up close to 50% in a month, what’s next for the easyJet share price?
• The easyJet share price is up 49% in a month. What on earth’s going on?
• At £5, could the easyJet share price still be a long-term bargain?

Stuart Blair has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.