easyJet (LSE: EZJ) shares have climbed a staggering 74% in the last six months. Over that time span, the stock was the fourth biggest riser among all companies on the FTSE 250 index.
Is this surge a sign that the budget airline’s Covid problems are over? If so, the share price of less than £5 might be a bargain.
Shares for £5?
Even with a 74% climb, the current easyJet share price of 495p is low compared to previous highs.
the shares cost 1,448p in 2014, 1,477p in 2017 and 1,271p in 2020. I’d be very happy to pick up some shares for less than a fiver if they can climb back to those previous levels.
Nearing pre-pandemic capacity
The good news for easyJet starts with projected passenger numbers for 2023. At 94m, they’re close to the pre-pandemic figure of 96.1m. That’s a strong sign the firm is back on its feet after the global health crisis.
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 (projected) | |
| Passengers | 88.5m | 96.1m | 48.1m | 20.4m | 69.7m | 94m |
The Luton-based firm’s 2022 annual report was mostly talking up the progress from lockdown-hit 2021. But I’d have liked to hear more from the management team about the prospects for future profitability.
2022 vs 2019 revenue
The biggest problem for easyJet is that the higher passenger numbers it’s seeing aren’t being translated into the kind of profits those numbers used to generate.
On the one hand, revenue for 2022 of £5,769m is getting closer the 2019 figure of £6,385m, but it’s not close enough. Crucially, in 2019 the airline made a pre-tax profit of £427m compared to a £178m loss in 2022.
| 2018 | 2019 | 2020 | 2021 | 2022 | |
| Revenue | £5.9bn | £6.4bn | £3.0bn | £1.5bn | £5.8bn |
| Pre-tax profit/(loss) | £578m | £430m | (£1,274m) | (£1,136m) | (£178m) |
The reason for the near £600m difference? It mostly seems to be down to rising fuel costs, with oil at $130 a barrel in 2022.
I’d hope to see some sign of a return to profitability this year with oil prices hovering around $70-80 a barrel.
The Rolls-Royce connection
Among recent news, something that caught my eye was a partnership with Rolls-Royce that achieved, “a world first — successfully running a modern aircraft engine on hydrogen”.
While it’s obviously early days, a pioneering net zero breakthrough could be an exciting catalyst for easyJet further down the line.
This could be especially profitable as many airlines — easyJet included — are aiming to reach net zero emissions by 2050.
If I had £1,000
Let’s say I had a spare £1,000 to invest right now. Based on my thoughts detailed here, I don’t think I’d use the money to open a position in easyJet. There’s good and bad regarding this stock at present, but the uncertainty around profitability is a little too much for me to think it would be an excellent investment. I’ll carry on watching it though.
