Is easyJet PLC (easyJet PLC (LSE:EZJ) poised to recover or is there more trouble ahead for its long-suffering shareholders?
Its latest financial quarter had some signs of encouragement, with its pre-tax loss reduced by nearly two-thirds year-on-year as it raised ancillary prices for items such as luggage.
The budget airline, meanwhile, increased quarterly revenue to nearly £1.8bn, in line with analysts’ estimates, up from a Covid- affected £213mln for the equivalent three months of last year.
The airline is now back to 87% of pre-pandemic flight capacity, in line with guidance that was revised down earlier this year, reiterating that it expects capacity to increase to 90% in the next sequential quarter.
Analysts agree that the outlook for the low-cost airline is looking “brighter”, though it still must contend with increased debt, flight cancellations and supply shortages.
easyJet said it flew 95% of its planned schedule during the third quarter.
However, it faced higher costs from disruption and flight cancellations as well as staff shortages that it blamed for its £114mln pre-tax loss.
Sophie Lund-Yates, equity analyst at Hargreaves Lansdown, said: “There was never going to be any escaping the labour and capacity constraints gripping the aviation industry, which meant easyJet downgraded capacity targets for the third quarter.
“Unfortunately, the logistics that come with cancellations and booking crowds of people on to new flights means the path to profitability has been extended.”
Whether easyJet can continue to raise prices amid weakening consumer confidence, given its 55% increase in ancillary yields was due to passengers spending money on extras, remains to be seen.
Its ticket prices have increased, which for a low-cost airline, could threaten its raison d'être particularly if consumer confidence weakens further amid the rising cost of living.
“The airlines best primed to encourage people to fly in these circumstances are those that offer reasonable rates to short and medium-haul destinations, with the added benefit of flying into more centralised airports a very real sweetener in easyJet’s toolkit,” said Lund-Yates.
Investors have not yet been overly convinced of easyJet’s recovery, and that’s where they differ quite strikingly from analysts who remain optimistic about its long-term prospects.
“easyJet is still struggling to translate the post-pandemic surge in demand into a solid bottom line performance,” said Victoria Scholar, head of investment at interactive investor.
easyJet's share price was up 1.82% this morning at 380.6p per share, but has eroded 40% in the past six months.
Analysts’ consensus is to buy the airline’s stock, with 12 out of 15 analysts recommending its shares, and three saying it will outperform the market compared to a single naysayer, according to SharePad data.
The question for investors is perhaps not whether but when is a good time to buy shares in the airline.
easyJet still needs to ride out the storm that continues to affect flight operators and there could be more turbulence on the horizon for the aviation sector’s recovery.
Hargreaves warned that easyJet is particularly exposed to one of the airports that has been worst affected by cancellations, Gatwick.
“Problems like shortage of labour aren’t going to disappear overnight,” said AJ Bell investment director Russ Mould. “For now though it does look like people have been so starved of their week on the beach they’re prepared to put up with some disruption and higher costs.”
Its share price may yet be a moot point as Wizz Air may still beat a pathway back to easyJet’s door.
After the latter rejected a takeover bid last year, Third Bridge analysts said in an analyst note yesterday that an acquisition could be back on the cards.