What might get the easyJet (LSE: EZJ) share price heading up again? The easing of the pandemic had encouraged investors to start buying. But then the events of 2022 sent the shares tumbling again.
Over the past 12 months, the easyJet share price has dropped 59%. Today’s price is even lower than Covid crash levels. But as we head into July and beyond, I think a few things could help get a new recovery going.
The airline reported a loss in the first half of the year, to 31 March. But it was reduced from last year, and towards the better end of guidance. The company had already sold 76% of its forward bookings for the third quarter, with 36% of Q4 bookings sold too. That’s significantly above 2019 bookings, prior to the arrival of Covid-19.
Also, easyJet expected to record around 90% of full-year 2019 capacity in Q3, and 97% in Q4. With a target of returning to pre-pandemic capacity next year, easyJet hopes to achieve mid-teen levels of EBITDAR margins “in the medium term“.
We’re due a Q3 update on 26 July. And if we see any improved progress against these milestones, I think the easyJet share price could benefit.
We’ve had weeks of travel chaos at airports, with flights cancelled across the board. It’s largely down to staff shortages, but we’re also in the shadow of industrial action.
Strikes are threatened at airports, while we’re also expecting strikes from easyJet and Ryanair staff. It’s not just in the UK, with strikes at French airports too. And they’re extending beyond June.
So isn’t this a reason to expect the easyJet share price to fall, rather than rise? Not necessarily.
When we’re in intense bad news times like these, the pessimism can quickly become reflected in the share price. If easyJet shares already encompass all the fear, then any easing of the current chaos could help.
The price of fuel is one of those few major things that can wreak severe damage, but is beyond an airline’s ability to control. Well, actually, maybe not totally beyond control.
Because of the uncertainties, airlines typically hedge their fuel costs by arranging contracts months in advance. In its June update, easyJet told us it’s 71% hedged for fuel for the second half of the year, and around 49% for the first half next year.
That softens the problem a bit, and provides welcome cost visibility. The oil price is still high, at around $115 per barrel. But it was over $120 earlier in June. I’m not expecting any drop back to levels from before the Russian invasion of Ukraine any time soon. But even a modest further retreat from that peak could help.
The short-term outlook might appear gloomy now. And easyJet investors possibly face greater risk than they have for a long time. But times when pessimism is at maximum are often good times to buy.
And some of these problems are actually the result of a good thing, a resurgence in demand for air travel.