As with any other year in the markets, there were winners and losers in 2023. I think it’s fair to say that the easyJet (LSE: EZJ) share price was one of the former. A jump of 54% made it one of the best blue-chip stocks to own in those 12 months.
What went so well?
The obvious catalyst for this stellar rise has been the ongoing post-pandemic recovery of the travel sector. That’s no mean feat in a year dominated by interest rate hikes and a cost-of-living crisis.
If 2023 has taught me anything, it’s that people are willing to tighten their discretionary spending on most things. But travel isn’t one of them.
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This trend eventually became clear in easyJet’s numbers. In late November, the business delivered a sparkling set of full-year results. Headline pre-tax profit of £455m was down to a storming second half — a huge improvement on FY22’s £178 million loss.
Sure, rivals enjoyed similar earnings propulsion. But the relief from investors was palpable. Having faltered following the peak summer period, the easyJet share price rallied, no doubt assisted by the general improvement in market sentiment.
A bit of perspective
As good as all this was, there’s only so much we can — or should — draw from a single year.
Seen across a longer timeline, this has been a nightmare stock to own. The share price has almost halved in five years. To make matters worse, there have been no dividends since March 2020 (although these have now been reinstated with the first payment due early next year).
Suddenly, the 11% or so achieved by the FTSE 250 index in which easyJet features doesn’t seem so bad. A simple tracker fund would have earned some dividends during each of those five years too.
More to come
On a more positive note, easyJet’s recent momentum could continue, even if no one knows for sure just how markets will behave in 2024.
Bookings for next summer already look strong and recent consumer research (cited by CEO Johan Lundgren) suggests that 75% of Britons plan to spend more on their holidays compared to last year. Confirmation of a cut to interest rates could boost demand further.
As a sign of its bullishness, the market received confirmation just before Christmas that easyJet had placed an order for 157 aircraft with plane maker Airbus as it seeks to sell more seats from congested European hubs like Amsterdam. With reduced competition, with rivals going bankrupt, this makes a lot of sense.
Priced in?
But there are still risks. The decision to pause flights to Israel and Jordan due to geo-political instability will mean that easyJet’s Q1 bottom line might be similar to that achieved in the last financial year.
In addition to this, there are all the usual concerns. The potential for air traffic control strikes, a volatile oil price, and poor weather. Some profit-taking by short-term-focused traders can’t be ruled out either.
But with shares still trading on a reasonable valuation, I reckon some of this is already priced in.
Given that I already have an interest in the travel sector via my holding in On the Beach, I won’t be investing here.
But I will be watching the share price with interest in 2024.
