EasyJet (LSE:EZJ) shares ticked downwards on Thursday after initially moving up. The low-cost airline announced pre-tax losses of £557m over the half-year period, down from £645m at the same point a year ago. But there was some positive news as the firm expects conditions to return to pre-pandemic levels soon. So, should I be buying easyJet shares for my portfolio?
What’s in the trading update?
On Thursday, the British airline recorded that pre-tax loss despite revenue soaring. Revenue jumped to £1.5bn from £240m as Covid restrictions were eased.
There were still more positive signs. Sales over the past 10 weeks are running 6% ahead of 2019 levels with the airline reporting a surge in summer bookings. CEO Johan Lundgren told Bloomberg that there was “huge pent-up demand” for the coming months.
easyJet said that bookings are coming in much closer to departure than before the Covid-19 crisis. This is reflected in seat availability. Almost two-thirds of seats for the important third quarter — July to September — remain available.
Given the uncertainty this presents, he said it would therefore “not be appropriate to provide any further financial guidance for the 2022 financial year“. Lundgren added that the business was moving in the right direction and that there should be more visibility by the time of Q3 results.
easyJet did say that it expected final-quarter capacity on sale to be 97% of 2019 levels. It forecast that more than 90% of available seats would be filled.
Should I buy easyJet shares?
I’ve already bought shares in easyJet as I believe the long-term prospects for this budget airline are positive. In the near term, I expect demand for holidays to be fairly inelastic despite the impact of inflationary pressure on disposable income and flight prices. The primary reason is that there’s a lot of that pent-up demand for holidaying. I also think budget airlines are well positioned to benefit from this.
The airline has looked to increase its own measures of profitability and has moved planes to different routes in better-performing markets. This should improve margins.
Recent data looks positive too. Passenger capacity increased from 50% of 2019 levels in January to 80% in March. Moreover, the percentage of seats occupied grew from 68% to 81% over the same period.
However, there are certainly headwinds. Higher fuel prices, if sustained, could hurt the business, although its hedging strategy should shield it from higher fuel costs in the short term. There are also concerns about staffing. It was recently announced that easyJet is offering a £1,000 bonus to new and existing cabin crew in an effort bolster staffing levels. This is broadly reflective of the inflationary pressure we’re seeing on wages in the wider economy. Higher staffing costs could impact margins.
However, as a long-term investor, I believe now is a good opportunity to buy more. The airline has been highly profitable in the past and is currently trading around a third of its pre-pandemic peak.
