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Are easyJet shares poised to take off from 10-year lows?

EasyJet share price: One of easyJet's distinctive orange and white aircraft flies under blue skies.

The easyJet [EZJ] share price has more than halved this year as pandemic turbulence gave way to a summer of discontent that saw thousands of flights cancelled. 

The budget airline’s stock dropped to a 10-year low of 276.87p on 3 October, before recovering to its current level of around 300p – though that’s still a long way short of pre-pandemic levels of more than 1,200p.

The company has steered away from issuing guidance ahead of its year-end trading update on 13 October, but analysts’ estimates currently point to a loss of around £127m for the 12 months to the end of September. That would nevertheless represent a significant improvement on the 2021 headline pre-tax loss of £1.14bn. Focusing on the positives, CEO Johan Lundgren told the Mail on Sunday: “We will have a summer that’s profitable, but the annual results are a different thing”. 

So, after a gainful summer and signs that the airline industry may be turning a corner, will the outlook that accompanies Thursday’s full-year update offer investors reasons to be cheerful? 

Pandemic woes replaced by summer of discontent

The Luton Airport-headquartered airline incurred huge losses in 2020 when it grounded its fleet during the UK’s first Covid lockdown. Share sales and loans helped keep the company afloat during a second summer of travel restrictions in 2021. Then, with airlines expecting to bounce back in 2022, the industry was hit by a fresh wave of travel disruption. 

The war in Ukraine contributed to steeply rising fuel costs, while industrial action and staff shortages led to cancelled flights and scenes of chaos at some of Britain’s major airports, which were left struggling to cope amid a surge in passenger numbers. After disruption at Easter, easyJet in July cut 10,000 flights from its summer schedule. 

Prior to this year’s challenging summer, easyJet’s financials were improving. For Q3 – the three months to the end of June – the airline reported total group revenue of £1.76bn, up from £213m in the year-ago period, driven by an increase in flights and passenger numbers. That helped the company narrow its quarterly headline loss before tax to £114m, versus £318m in Q3 2021. 

The airline flew 22 million passengers in Q3, up from about three million in the year-ago quarter, while its planes flew at 87% of 2019 capacity during the quarter, compared to 16% a year earlier. This is expected to have increased to 90% in Q4. 

That said, costs also increased. Headline costs in Q3 grew to £1.87bn, up from £531 in Q3 2021, mainly due to the increase in flights but also partly due to “operational challenges” which resulted in £133m of disruption costs, according to a company statement.

Eyes on the horizon

While the full-year update will reveal the extent of this summer’s travel disruption on easyJet’s bottom line investors are likely to be just as interested in what bosses say about the outlook. As a budget airline, will easyJet benefit as passengers look to make savings during a cost of a living squeeze? Or will large numbers of consumers cut back on air travel altogether? Answers to these questions may help determine the easyJet share price’s direction of travel in the near term. 

Analyst sentiment certainly seems tilted towards the upside. According to data collected by the Financial Times, of 19 analysts offering a rating on easyJet in October 2022, six rated the shares a ‘buy’, eight thought they would ‘outperform’, three considered them a ‘hold’, one said they would ‘underperform’, and one rated them a ‘sell’. Within that group, 15 analysts offering price forecasts had a median 12-month price target of 550p, representing an 86.8% increase on Friday’s closing price of 294.40p. 

With the shares sitting only slightly above 10-year lows, it will be interesting to see how the market reacts after easyJet issues its year-end trading update at 7am on Thursday 13 October.

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