Airline and holiday operator easyJet (LSE: EZJ) released its first-quarter trading update today (24 January). It covers the period for the three months to 31 December, and the market likes it. As I type, the stock has jumped around 5% in early trading.
Robust underlying business momentum
However, the first figure that screams at me when reading the report is the headline loss before tax of £126m. So why are the shares so buoyant? Well, the year-on-year loss was actually reduced by just over 5% – so that’s progress.
The company said underlying trends in the first quarter were “strong”. The performance of the business improved compared to last year with positive booking trends. However, the conflict in the Middle East affected the financial figures.
So it looks like a case of (hopefully) short-term challenges causing a setback. But the directors stressed there’s a positive outlook for the rest of the financial year to September.
They’re not kidding. City analysts have pencilled in chunky double-digit percentage increases for earnings in 2024 and 2025.
It looks like easyJet’s airline and holiday businesses both have positive momentum and the progress shows in the share price chart:
With the stock near 533p, it’s almost 50% higher than it was last October. But scoping back, it’s clear the company has given its shareholders a bumpy ride over the past few years.
The easyJet stock hasn’t been an easy hold for investors. But the big question for me is, should it be a long-term position in my portfolio at all?
A volatile sector
I think not. The big problem is the ferocious cyclicality in the airline industry. Volatile general economic conditions often affect easyJet’s business. On top of that, it has huge and potentially unstable variable costs, such as airline fuel.
There are many moving parts that must align before a company in the airline industry can turn a decent profit. It’s not just easyJet. Others in the business such as Wizz Air, Jet2 and International Consolidated Airlines all face similar long-term challenges.
However, that doesn’t mean easyJet is completely off the agenda for me. Right now, the business seems to be in a sweet spot and the stock has attractions. I’d consider it for a shorter holding period.
Demand and bookings have “recovered strongly” since last November. The holidays division saw customer numbers 48% higher than the equivalent period last year. So beneath the surface of the headline loss, we’re seeing robust growth in that part of the business.
Looking ahead, the directors said overall bookings for this summer “are building well”. My general impression from the update is there’s decent momentum across the whole of easyJet’s operations.
On balance, I see the company as worth investors’ consideration time now. However, I wouldn’t ever buy and forget this stock.
