I first thought about buying easyJet (LSE:EZJ) shares after they crashed in the wake of the pandemic lockdown. With most of its fleet grounded, the company was haemorrhaging cash. Its share price plummeted to 400p — 75% below its pre-Covid high set in April 2015.
However, I decided not to invest.
I was fearful that if air travel continued to be restricted for an extended period, the airline might go bust. Also, I had concerns that the virus might mutate and wreak even more havoc.
Thankfully, neither of my fears were realised. Although, in September 2021, easyJet did have to raise £1.2bn via a rights issue to give it some headroom.
Had I been brave enough to make an investment in April 2020, my stake would now be worth 26% more. Nearly three years later, I’m wondering whether it’s time to buy shares in the UK’s second largest airline.
A slow recovery
The extent of the damage inflicted by the pandemic on easyJet is clear from the company’s half-year results.
| Metric | H1 2020 | H2 2020 | H1 2021 | H2 2021 | H1 2022 | H2 2022 |
| Revenue (£m) | 2,382 | 627 | 240 | 1,218 | 1,498 | 4,271 |
| Passengers (m) | 38.6 | 9.5 | 4.1 | 16.3 | 23.4 | 46.3 |
| Load factor (%) | 90.3 | 76.6 | 63.7 | 74.8 | 77.3 | 90.4 |
| Profit / (loss) before tax (£m) | (353) | (920) | (645) | (391) | (557) | 349 |
| Net debt (£bn) | 0.5 | 1.1 | 2.0 | 0.9 | 0.6 | 0.7 |
However, it appears as though a recovery is underway.
The company was profitable during the six months to 30 September 2022, and its planes were over 90% full. In this period, it flew over 11 times more passengers than it did two years earlier.
Additionally, unlike some other airlines, easyJet appears to have its debt under control.
However, it’s important to remember that the travel industry is seasonal. Historically, the airline has made a loss in the first half of its financial year (October to March). And, there’s still some way to go before pre-Covid levels of profitability are reached.
| Metric / £m | FY 2018 | FY 2019 | FY 2020 | FY 2021 | FY 2022 |
| Revenue | 5,898 | 6,385 | 3,009 | 1,458 | 5,769 |
| Operating profit | 463 | 466 | (899) | (910) | (27) |
| Profit / (loss) before tax | 445 | 430 | (1,273) | (1,036) | (208) |
Soaring costs
In any business, I believe controlling costs is equally as important as boosting revenues.
easyJet’s biggest expense is fuel, which cost £1.28bn in 2022. This is more than the combined cost of its crew (£767m), maintenance (£301m) and marketing (£173m).
At the end of November 2022, the company had hedged (purchased in advance) 74% of its requirements for the first half of 2023, and 51% for the second six months. The average agreed price is $814 and $903 per metric tonne, respectively. For comparison, the spot price for jet fuel is currently around $900.
Hedging enables the airline to have some certainty over its principal cost. But, if fuel costs are falling, then purchasing in advance can be a mistake. However, given that the global demand for fuel is expected to rise further, I don’t think current prices are going to reduce significantly in the coming months.
Shareholder returns
Although capital growth is important to me, I like to earn an income from my investments.
easyJet last paid a dividend (43.9p per share) in March 2020. If repeated in 2023, this would mean a current yield of close to 9%. However, the dividend was based on its 2019 results (its last year in the black) when it recorded a profit before tax of £430m.
The company is forecasting a profit of around £125m for its 2023 financial year. If the company chooses to declare a dividend, it’s therefore likely to be far lower than before.
Even so, if I had some spare cash, I’d still buy shares in easyJet. Now that the pandemic appears to be behind us, I think it would be a good long-term investment.
