In a similar way to most travel and leisure stocks, the easyJet (LSE:EZJ) share price has been very volatile over recent months. It’s up 5.5% today alone, but is down 28% over a one-year period. There are various factors at play with the current share price that I need to understand before making a decision on whether to buy right now or not.
A change in the air
Last week we had the H1 trading update for the period through to the end of March 2022. I think that it was a positive report overall. It spoke of how capacity was being ramped up, with the airline at 80% of FY19 capacity in March. It was also encouraging to note that “summer bookings for the last six weeks have tracked ahead of the same period in FY19 as customers book closer to departure”.
This leads me to conclude that passenger demand should be back to normal levels by the summer. From there, I don’t see demand materially falling back to pandemic levels, unless we have another black swan event. As a result, the easyJet share price should be able to extend gains for 2020 on the basis that investors have optimism about the future earnings potential for the company.
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For the moment, earnings still leave much to be desired. The loss before tax for the six months is expected to be in the region of £535m-£565m. I think these losses over the past year are the main reason why the easyJet share price is down 28% over this period.
Concerns still lingering
Despite the positivity, there are still a multitude of factors that could hinder the share price this year. Some were flagged up in the report, including the “ongoing challenges from Covid-19, rising fuel prices, the removal of furlough support and incremental costs associated with ramping up operations.”
It’s a long list of problems, and ones that could keep the easyJet share price from making serious gains. For example, we’re all feeling the pinch of higher energy costs. The airline operator is also faced with higher costs, with jet fuel becoming increasingly expensive. Even though easyJet has hedged some and pre-bought at lower levels, it’s still going to impact profit margins.
The company is also struggling at the moment due to the many staff off sick due to Covid-19. Even though the virus is unlikely to be fatal to its employees, it does still require time off for recovery and to prevent them spreading it. This has already caused some flights to be cancelled due to staff shortages. Ultimately, if flights can’t take off, revenue is lost via refunds. The reputational damage if this continues this summer could hit the share price.
Plenty going on with the easyJet share price
I expect that easyJet shares will continue to be volatile for the spring and summer. Investors will be happy if capacity continues to move higher. This should help the company to reduce losses and have a timeline to get back to profitability. However, with so many negative factors that could cause serious headwinds, I’m still concerned. Therefore, I’m going to wait until I see how the summer pans out before jumping in.
