Over the last 12 months, easyJet (LSE:EZJ) shares have been enjoying a steady upward trend. The short-haul airliner’s capitalising on a higher travel demand, particularly during the ongoing summer season, which has reached record levels.
As a result, passenger numbers are on the rise, giving management some more flexibility in their quest to fix the cracks in the balance sheet. Yet despite this progress, investors who used the chaos of the pandemic to snap up shares in July 2020 have still to earn a return. In fact, an initial £1,000 investment’s still only worth around £950 today.
Why? And could that soon be about to change?
What’s going on with the share price?
Operationally speaking, easyJet’s seemingly completely recovered from the pandemic. But from a financial perspective, there’s still a long way to go. The firm continues to report operating losses even with strong summer bookings. And when paired with fluctuating fuel costs and an intense competitive landscape that’s preventing meaningful ticket price hikes, margin expansion remains elusive.
With that in mind, a flat five-year performance isn’t a major surprise. However, the question now becomes, are we near an inflection point? A quick glance at share price targets from institutional analysts suggests we might be.
As of 3 July, the average consensus is that easyJet shares could climb to 682.5p within the next 12 months. That’s roughly a 30% increase from current levels and, if accurate, would be enough to transform £1,000 into £1,300.
2025 growth drivers
There are a variety of factors driving this strong conviction. However, one of the most significant expected benefits is from fleet up gauging as part of easyJet’s modernisation strategy. By replacing older aircraft with larger, more efficient ones, fuel costs go down while unit economics improve, resulting in a higher profit per passenger.
The financial advantages are clear. However, they could be compounded if easyJet’s Holiday division continues to fire on all cylinders. Customer growth in this segment’s expected to land at around 25% this year, driving more passengers onto easyJet planes. And with more high-margin package holidays being sold, not only are easyJet’s margins supported, but its revenue stream’s also further diversified, reducing risk. That’s why easyJet’s currently Deutsche Bank’s top pick among European low-cost carriers.
That said, there are still plenty of risks to take into consideration. The company’s still highly sensitive to the European economic cycle. And right now, there are a growing number of forecasts pointing to weaker GDP growth courtesy of the looming US tariffs.
Why’s that a problem? It creates a series of knock-on effects, including lower demand for air travel as consumers seek to eliminate discretionary spending, the last thing that easyJet needs right now.
The bottom line
All things considered, easyJet seems to be steadily getting back on track with a clear and seemingly reasonable plan to improve unit economics. The fiercely competitive landscape does give me some pause, especially with a potential slowdown in air travel on the horizon. Nevertheless, investors seeking exposure to the short-haul travel market may want to consider taking a closer look.
