The easyJet (LSE: EZJ) share price slipped 5% on Tuesday to 375.1p per share. This comes despite a solid full-year trading result which showed losses narrow sharply in the 12 months to September.
Business across the aviation industry is recovering strongly, as recent updates from IAG and Ryanair also show. So is now the time to buy easyJet shares for my portfolio?
Losses reduce
Today’s report showed revenues jump 296% year on year as easyJet’s recovery from the Covid-19 crisis continued. These clocked in at £5.8bn versus £1.5bn a year earlier.
Passenger numbers more than tripled to 69.7m, from 20.4m a year earlier, and capacity rose to 81.5m seats from 28.2m. Meanwhile, load factor — which gauges how full easyJet’s planes were — rose 13% to 85.5%.
Higher fuel and labour costs, allied with a strengthening US dollar, stopped the business from turning a profit last year. But easyJet’s pre-tax losses narrowed considerably, to £178m from £1.13bn.
Net debt at the business also fell by £240m year on year, to £670m.
Record quarterly earnings
easyJet also recorded a blowout result for the fourth quarter. Then EBITDAR (earnings before interest, taxes, depreciation, amortisation, and restructuring or rent costs) clocked in at an impressive £674m.
This was a record quarterly result and up 59% from the same quarter in 2019.
Commenting on today’s results, Matt Britzman, equity analyst at Hargreaves Lansdown, says that it is difficult to judge how long robust trading at the airline will last during the cost-of-living crisis.
But he notes that “with easyJet feeling positive about spring next year it looks like holidays could be one of the last areas to see spending reign in.”
Britzman adds that “a strong balance sheet position and targeted moves into new growth areas like easyJet holidays put the group in a decent position.” Although he notes that cost pressures are likely to remain a challenge this year.
Here’s what I’m doing now
The consensus among City analysts is that easyJet will return to profit again this year. A pre-tax result of £243m is currently tipped.
But despite its strong momentum I’m not tempted to buy easyJet shares just yet. Revenues could continue to soar, and the business might benefit from cash-strapped travellers switching down from more expensive airlines.
However, the company’s runway to full recovery is still littered with danger. High oil prices and labour shortages mean costs could remain elevated for some time. Meanwhile, the US dollar might well remain strong versus the pound for a long time.
Finally, demand for tickets in the short-to-medium term could run out of steam amid the economic slowdown across Europe allied by an elevated cost of living.
And I don’t think these threats are reflected in easyJet’s current share price. The budget flyer now trades on a forward price-to-earnings (P/E) ratio of 14 times. So, for the time being, I’m happy to buy other UK shares.
