Despite being up 12% over the past year, the easyJet (LSE:EZJ) share price tumbled almost 10% last month, falling below 500p. During this period, the FTSE 100 hit fresh all-time highs, so clearly there was something company-specific that led to easyJet underperforming. Here are some of the key factors I believe contributed to the move.
Factors at play
The biggest impact came from a disappointing trading update during the month. In early July, strikes by French air traffic controllers caused major disruptions across Europe. They impacted around 4,000 flights and cost easyJet approximately £15m over just two days.
Interestingly, CEO Kenton Jarvis actually publicly criticised the strike’s impact and the performance of the French authorities. This didn’t really help and added pressure on the stock due to poor investor sentiment.
The business also struggled with elevated fuel prices. The update showed how higher prices added another estimated £10m hit to profitability in the accounting period. As a result, the management team warned that these combined factors would reduce full‑year profits by around £25m. This triggered the stock to move lower, given the size of the financial impact.
Looking ahead
With the results out of the way, we won’t get any more planned updates until the autumn. However, investors will be able to get a feel for how the sector in general is performing. This can be done by monitoring the booking trends and UK airport activity levels for the rest of the summer. This is something the July update alluded to, saying “the final outcome for FY25 will, as always, depend on late summer bookings and the associated yields.”
Monitoring jet fuel costs will help clarify how easyJet’s future earnings will be impacted. If prices keep rising, it could spell more trouble, but if they fall it will ease cost pressure.
Reasons to be positive
It struck me that the move in July was quite excessive when you step back and look at the bigger picture. Investors were spooked despite reporting a third-quarter pre-tax profit of £286m. This was a 21% year-on-year increase! Customer satisfaction was high, with a note saying that management “sees a positive outlook for the Group for FY25 and beyond, as we continue to focus on progressing towards our medium-term targets.”
I believe the July share price drop was just a blip. The fundamentals of the report are fine and bode well for the future. The factors regarding strikes and fuel prices are outside of the business’s control. It has been shown that with the factors within its control, such as marketing, load capacity and other points, it’s executing on its plans. As long as it keeps managing finances well internally, these short-term risks should ease. As a result, I think it’s an attractive stock for investors to consider buying.
