easyJet (LSE:EZJ) shares fell 3.5% yesterday on the news that Chief Operating Officer Peter Bellew was leaving the company. This news comes after months of flight disruption across Europe and with the easyJet share price already in a bad place. It’s down 55% over the last year and 70% in the last five years.
I’m now wondering whether this further shock to easyJet shares makes them an unmissable bargain for my portfolio.
Heavy turbulence
The Luton-based airline will be forced to axe around 10,000 flights over the next three months. This amounts to roughly 6% of total flights and has been caused by air traffic delays, staff shortages and ongoing strike pressures.
Why is the company struggling to get the staff it needs? After it cut jobs during the pandemic, it needs to replace them. But CEO Johan Lundgren noted that Brexit has forced the company to reject staff applications of 8,000 EU nationals. As a result, staffing shortages look to continue. This disruption has hit easyJet at the worst time with the airline industry preparing for the busiest summer since Covid.
I believe that the lack of flight certainty will harm demand over the coming few months. I myself would be reluctant to book a flight knowing there was a possibility it may never go ahead.
Will easyJet shares get back on track?
However, things are not all doom and gloom for the budget airline. Morgan Stanley believes that the cost of living crisis will force travellers to book with lower-cost airlines such as easyJet over the next year.
Alongside this, rising fuel costs are not as damaging as might have been expected. The company moved early to hedge against the cost of fuel. This means easyJet has fuel contracts at a fixed price, for now, to offset volatile price fluctuations. For the year’s second half, 71% of the airline’s fuel will cost $619 per metric tonne. This is considerably lower than the current un-hedged price of $1,225 per metric tonne. Competitors such as Wizz Air were slower to hedge against fuel costs and are paying a much higher amount.
In addition to all this, the company currently holds cash of £3.2bn, which comfortably covers debt of £2.6bn. This is good news to me as it shows that easyJet hasn’t been borrowing beyond its means throughout the pandemic.
What am I doing?
I pay attention whenever I see a share price fall over 50% in a year. In this case, I feel that things aren’t as bad as they seem on the surface. Despite all the disruption, easyJet still operates around 1,700 flights daily. Additionally, there should always be demand for low-cost flights.
However, I’m still not adding easyJet shares to my portfolio. I believe that continued flight disruption will push customers over to less affected competitors such as Ryanair. Also, the resignation of the COO at this vital time leaves the company with incomplete leadership team to tackle upcoming turbulence.
