The Covid-19 pandemic has devastated the travel sector since early 2020. As planes stayed grounded and hotel rooms went empty across the world, UK stocks in related industries plunged.
But as we approach the three-year point of the beginning of the crisis, the dust seems to have settled. The virus and its associated lockdowns are in the rear-view mirror. Companies in the travel sector look like a safer bet than they have done for years.
Not only are travel habits returning to normal, but a sense of “making up for lost time” offers a tantalising prospect for investors.
Buying opportunity?
easyJet (LSE: EZJ) is currently at 30% of the share value it held in January 2020. The company saw a brief recovery in 2021 but has underperformed since then.
The stock being down over 70% – while not unusual for the airline industry at the moment – does present a buying opportunity.
The airline’s projected passenger numbers for Q4 2022 were up to 24.3 million from 13.4 million in the same period last year. Crucially, this is 88% of (pre-pandemic) 2019 capacity, up from 58% of 2019 capacity last year.
What’s more, peak periods for the quarter like the October school half-term break and the Christmas period have reached pre-pandemic passenger numbers.
All of this means that Q4 operating profit is expected to be between £525m-£545m. easyJet also boasts extremely strong balance sheets, holding £3.6bn in cash and money market deposits and a net debt of only £0.7bn. In spite of this, no dividends will be paid out this quarter in line with the company’s policies.
Risks
In amongst the good news, easyJet is facing challenges. The strength of the US dollar has impacted the company’s costs. And it’s unclear whether we will see a return to previous exchange rates or if this will be an ongoing issue.
European air traffic control issues have plagued the airline industry, too. Staff shortages and general ATC capacity were responsible for 70% of all en-route flight delays between January and June 2019. Fuel costs are another issue to consider, although easyJet is well hedged for future volatility.
Perhaps the most pressing problem for the company is the cost-of-living crisis. When times are hard, holidays abroad are among the first things to go. It remains to be seen just how prolonged and serious the crisis will be. For me, this is the biggest question mark hanging over an otherwise attractive stock.
All in all, I like easyJet as a buying option. The company’s fundamentals are sound. Plus, the fact that it is nearing pre-pandemic passenger numbers – while still over 70% down in share price – means I will be considering this for my own portfolio for 2023.
