Will EasyJet shares fly higher after record profit forecast?

EasyJet’s share price is soaring this year, thanks to a return in travel demand after the pandemic nearly cratered the airline industry. This has led to EasyJet posting record profits in the third quarter, with promises of more of the same next quarter. Yet industry action could still ground the EasyJet share price. 

• EasyJet shares up 37% this year, but down 9.7% over the past month.
• Following a best-ever third quarter, the low-cost airline is forecasting another record-breaker.
• 1,700 flights cancelled due to air traffic disruption.

EasyJet’s [EZJ.L] share price has soared in 2023 as it flies in the face of wider macroeconomic concerns. Despite worries over the cost of living crisis, EasyJet delivered a best-ever third quarter (Q3) and is predicting another record-breaker in Q4.

Yet the stock has lost some altitude over the past month as flight cancellations weigh on optimism. Are there enough headwinds to lift EasyJet shares or has it flown as high as it’s going to in 2023? 

EasyJet posts record Q3

EasyJet landed a record £203m in pre-tax profit for the three months to 30 June, reversing a £114m loss in the same period last year. Group revenue rose 34% to £2.36bn, with money from ticket price increases and passenger add-ons helping to boost sales. 

In a sign that demand has returned to the airline industry, passenger numbers grew 7% year-on-year in the quarter, with revenue per seat up 23%.

Still-heightened fuel costs continue to be a concern, with EasyJet saying it has hedged 77% of its jet fuel for the Q4 at an average rate of $877/MT.

Based on current performance, the low-cost carrier expects revenue per seat to be up 10% year-on-year in Q4. EasyJet said it expects profits before tax in the Q4 to be another record-breaker. 

“We continue to see good momentum as we move into Q4 where we will be operating over 160,000 flights and expect to deliver another record PBT performance. This winter we are adding more than 15% capacity and we see bookings ahead of the same period last year,” CEO Johan Lundgren said. 

Headwinds for EasyJet share price

Year-to-date, EasyJet shares are up 37%, as pent-up demand for international travel returns following the pandemic. Yet over the past month EasyJet’s share price has lost some altitude with a near 10% decline. 

One headwind is the potential for air traffic disruption over the summer season, with EasyJet warning that this could affect demand. 

Air traffic control shortages could be a major problem for EasyJet and other European carriers this summer. Recruitment freezes and layoffs during the pandemic mean there is a staff shortage just as the industry begins to recover. According to Eurocontrol, airspace closures and staff shortages have resulted in a 37% increase in delayed flights across Europe this year. 

Lundgren said that a combination of “more constrained airspace and flow rate restriction are resulting in unprecedented [air traffic control] disruption.” Lundgren also pointed out that strike days were up 40% in the first half of the year compared to 2019. 

EasyJet has already cancelled 1,700 flights this summer due to air traffic disruption. 

Another factor behind the share price slump has been European wildfires that have put summer getaways in doubt.

The cost of living crisis shouldn’t be discounted either. While EasyJet doesn’t appear to have been affected and is forecasting record quarterly profits, it’s still worth keeping an eye on.

It’s a similar story at Ryanair [RYAAY]. The Irish-carrier’s share price has gained over 26% this year, but has dipped over the past month.

Ryanair is also contending with the escalation of a long-running feud with third-party booking sites. In a letter to the UK government, booking companies said that Ryanair’s policy of collecting significant personal information from customers was “invasive, unnecessary and unfair” and may be in breach of UK data protection rules.

An additional headache for Ryanair is the prospect of ‘mass cancellations’ at Dublin airport next month if it is forced to cut flights between 11pm and 7am to limit noise.

Where next for EasyJet’s share price?

On a more positive note, EasyJet has launched a summer flight school for children. The aim is to encourage more youngsters into aviation and overcome gender inequality in the industry —  only 6% of the world’s pilots are women.

From an investment standpoint, EasyJet trades at a 7.35 forward P/E compared to Ryanair’s 10.15, according to data from Yahoo Finance. Analysts are forecasting EasyJet’s revenue to grow 42% this year, before slowing to 12% the following year. EasyJet shares have a 650p 12-month median price target. Hitting this would deliver a 45.2% upside on Friday’s close.