The last few years have been a turbulent time for the easyJet (LSE: EZJ) share price. After recovering from its 2020 lows, the stock has once again found itself falling. The last 12 months have seen the share price nearly halving. And it’s down 35% year-to-date alone.
Last week saw easyJet’s poor run continue as 10% was shaved off its price. So, can the firm recover from this? Or should I be steering clear of easyJet shares? Let’s find out.
easyJet’s trading update
Last week saw the release of the firm’s summer trading update. Within this, there were multiple positives. For example, CEO Johan Lundgren was keen to point to the fact that “demand for travel has returned,” while passenger volume for April and May was seven times that of last year. Yet despite this, investors reacted negatively to the update as the firm lowered its guidance for this quarter. Originally guided at 90%, easyJet now expects its third-quarter capacity to be 3% lower than its original target. On top of this, the firm has also lowered its Q4 target to 90%, a large fall from the 97% guidance it previously set. The stock fell over 6% last Monday on the back of this news.
A long summer ahead
The main reason for the reduction in guidance is due to the multiple headwinds the business is currently facing.
Firstly, staff shortages across multiple airports have seen easyJet having to cut flights over the summer period. Its two largest bases, Gatwick and Amsterdam, have both introduced daily flight caps. And as a result, it’s expected these cancellations could equate to 10,000 out of 160,000 flights for July, August, and September. With some predicting this could cost the firm up to £200m, this is not good news for the business.
There’s also the serious threat of strikes by Spanish-based easyJet workers. The firm has been working alongside the Spanish union USO since February to resolve pay disputes. However, the union recently stated negotiations are in a “deadlock situation.” The union has called for a series of 24-hour strikes throughout July. Should these go ahead, this would only intensify the issues easyJet is currently facing, and I’d expect to see the share price suffer.
The cost-of-living crisis could also see demand fall off in the months ahead. With inflation continuing to soar, consumers are less likely to book flights as they’re left with less cash to spend. On top of this, rising fuel prices will also squeeze the firm’s margins.
However, I like the moves the firm is making for the long term. It recently announced an order for 56 Airbus A320neo aircraft, while it has also upped prior orders for more fuel-efficient and larger aircraft. From a long-term perspective, this should place easyJet in a strong position going forward.
What I’m doing
Although the moves it’s making now may play out well in the long run, I think it faces too many issues in the months ahead. With the cost of living continuing to spike, I think demand will fall off. And with ongoing delays and cancellations, it could struggle in the months ahead. I won’t be buying easyJet shares today.
