The airline industry has suffered badly during the Covid-19 pandemic and the recent rise of the Omicron variant has dented the easyJet (LSE: EZJ) share price even further. While this price correction may seem alarming, I think it could be a buying opportunity for 2022.
Pandemic difficulties
The last two years have made for unpleasant reading for easyJet shareholders. Since January 2019, the share price has tumbled 53% and, in the space of one year, has fallen 22.5%. We saw something of a recovery in the first half of 2021, as optimism about foreign travel increased. The impact on the share price during this time was generally quite positive, doubling in value from October 2020 to May 2021. Since then, the charts show a distinct downtrend and the share price has fallen again, this time by about 37.5%. This downtrend coincided with the UK government’s publication of red, amber, and green lists that eventually turned into a sole red list.
Since this time, the new Omicron variant led to stricter travel rules in much of Europe, particularly Western Europe. This had a negative impact on the easyJet share price, because easyJet primarily operates flights in Western Europe. This acted as a deterrent to short-haul travel. Furthermore, Morocco announced a ban on in-bound UK flights in late November 2021. This was another problem for easyJet, because it operated a number of package holidays to this country. Citi recently downgraded easyJet and other short-haul carriers in favour of long-haul airlines. With a greater number of routes in operation and continued cargo flights, Citi believes longer-focused flying stands a better chance of a quick recovery.
Optimism for the future
Indeed, the easyJet share price fell from 556p to 485p by mid-December 2021. Nonetheless, pre-tax losses were reported at £1.1bn and were better than expected, and summer 2021 was considered relatively normal. The UK government has also recently abolished the red list for travel. This is chiefly because the Omicron variant has spread to such an extent that stemming international travel will not have much an impact on containing the virus.
Since the aforementioned Omicron-induced share price low in mid-December 2021, the easyJet share price has increased 28.6%. This gives me great confidence that international travel will be fully restored in the near term. It also appears that the Omicron variant is milder than the previous Delta variant. This is shown by steady intensive care numbers. It is also highly likely that UK travel will require less Covid testing.
There is always the risk of further variants in the future. Any such variant could place the travel industry into further peril and uncertainty, while negatively impacting the share price. With many European countries taking extreme measures to control the Omicron variant, easyJet’s short-haul business could be severely disrupted. Nonetheless, I think this is a great opportunity to buy at low levels and that the easyJet share price will reach pre-pandemic levels in the relatively near future. I will be buying for the long term.
