Will easyJet’s share price recover?

easyJet’s share price has fallen to near-600p after a recent trading update. Edward Sheldon looks at whether it can recover from here.

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Shares in budget airline easyJet (LSE:EZJ) have fallen again. Only a few weeks ago, the EZJ share price was above 700p. Today however, it’s back near 600p. Can easyJet’s share price recover from here? Let’s take a look.

Where does the easyJet share price go from here?

Earlier this week, easyJet posted a trading update that indicated the outlook could be improving.

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While the company said it’s set to post a pre-tax loss of £1,135m-£1,175m for the financial year ended 30 September 2021 (analysts were expecting a loss of £1,175m), it also said it’s starting to see a recovery in air travel.

In Q4 of its last financial year, for example, the company operated at 58% of FY2019 capacity, a significant increase on the 17% of FY2019 volumes it achieved in Q3. Continental European load factors, which accounted for just over 60% of overall capacity, were 83% for the quarter.

As for Q1 of the current financial year (October-December), easyJet expects capacity to be up to 70% of levels seen in FY2019. According to the company, the UK government’s move to remove and relax international travel restrictions has created “positive booking momentum.” Looking further out, the airline expects capacity to grow throughout FY2022.

We are encouraged to see positive booking momentum into full-year 2022 which has led us to increase our capacity plans,” said easyJet CEO Johan Lundgren. “It is clear recovery is underway,” he added.

Meanwhile, on the liquidity front, easyJet said as of 30 September, it had unrestricted access to £4.4bn of liquidity. It also noted net debt had fallen to £0.9bn at 30 September from £1.1bn a year earlier, following its recent £1.2bn rights issue.

This is all quite encouraging. To my mind, it suggests there could be share price upside in the medium term.

EZJ shares: the risks

There’s still a lot of uncertainty here however. Several things could hit easyJet’s share price. For starters, we don’t know what’s going to happen with Covid-19 in the near term. If we see a surge in cases over winter, governments may move to tighten travel rules. This could have a negative impact on capacity.

Secondly, the rise in oil prices is a threat to easyJet. Recently, Brent crude has spiked up above $80 per barrel – it’s highest level since 2018. Plenty of experts believe it could keep rising. Analysts at Goldman Sachs, for example, recently raised their oil price forecast to $90 per barrel. easyJet does have some protection in place here as it’s 55% hedged for fuel this financial year. However, higher oil prices could still hit profits.

Third, there are question marks over business travel (which is more profitable for airlines). Is it going to return to previous levels now that companies are more focused on sustainability? No one yet knows.

Better stocks to buy?

Given the uncertainty here, I won’t be buying easyJet shares for my portfolio. To my mind, the risks are too high. Ultimately, I’d rather invest in businesses more in control of their own destiny.

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Edward Sheldon 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.

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