Just as the outlook for easyJet (LSE: EZJ) shares was starting to improve, along came the weather to ruin everything. And not just any weather, extreme weather, as wildfires savage Rhodes and Corfu.
We’ve all seen pictures of British tourists desperately fleeing the inferno, as raging fires turn hotels into bomb sites. The easyJet share price was also singed yesterday, falling 4.44%. In total, almost £700m was wiped off London-listed airline stocks. British Airways-owner IAG, TUI, Wizz Air and Jet2 all got burned.
Age of extremes
It’s the last thing easyJet investors need after a tough few years for the stock, starting with pandemic lockdowns. The budget carrier’s shares are down two thirds on five years ago. Yet they seemed ready for take off after rising 20.13% in the last 12 months.
This is one of the most popular stocks among Fool readers. Many sniffed a recovery opportunity as the world started flying again, post Covid. Last week, easyJet reported a Q3 pre-tax profit of £203m, reversing last year’s £114m loss, amid strong passenger demand. Adding to the excitement, it forecast record Q4 profits.
easyJet and other airlines now face additional costs from repatriating fleeing British tourists, plus potential reputational damage if they fail to step up. Holiday cancellations will hit revenues too.
Now airline investors face yet another red-hot risk. A few more heatwave-stricken summers like this one could persuade British holidaymakers that Margate is a safer bet than Marbella. Although this year, the UK’s summer is a bit of a washout.
Holiday makers are a surprisingly resilient bunch. People have short memories and the news cycle quickly moves on. Extreme weather fears are unlikely to affect winter bookings either. I suspect the damage may be short-lived, although if heatwaves become a regular thing, it could have a cumulative effect on demand.
The risks keep adding up
Budget carriers face another risk, with Ryanair warning yesterday that the cost-of-living crisis and rising mortgage payments could threaten demand. Foreign flights may look cheap, with around half easyJet’s fares selling for less than £50. But it’s the extras that add up, including transfers, hotels, entertainment and so on.
easyJet faces old risks too, with air traffic controller strikes leading to the cancellation of 1,700 flights between July and August. However, that’s only a fraction of easyJet’s planned 90,000 flights during the period.
I like buying good companies in times of trouble, and easyJet shares are certainly trading at a discount today. Yet there’s no dividend to tide me over while I wait for the recovery. That was dropped in the pandemic and hasn’t been restored yet.
Today’s wildfires may even be a buying an opportunity, but I won’t be buying easyJet shares. The airline sector’s problems just keep mounting, and I can see much better opportunities elsewhere on the market. Many of them come with big dividends attached too.
