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Is the Jet2 share price about to gain altitude?

Jet2 share price: The UK’s third largest airline has endured turbulent times recently

Many traders and investors will turn their attention to the Jet2 share price on 7 July, as the airline releases its results for the year ending 31 March 2022. Although the business endured a turbulent journey through the Covid-19 pandemic and has recently been hit by macroeconomic pressures such as rising inflation, shareholders will be hoping that pent-up holiday demand helps fuel a recovery.

A strong rebound was expected for the company post-pandemic. However, with UK consumer prices rising 9.1% in the year to May and staff shortages contributing to delays at airports, Jet2’s latest update could show the company is still suffering. 

Investor confidence in the airline has certainly waned in 2022. After recovering from its 2020 lows, the stock has fallen more than 23% this year. 

Mixed half-year results 

As Jet2 reported in November, revenue in the six months to 30 September 2021 grew 43% year-on-year, reflecting the company’s improved performance after Covid-19 forced the travel sector to a halt. In addition, the business also saw a seating capacity increase of 86% to 2.68 million.

However, its load factor declined almost 12% year-on-year to 57.3%, meaning that despite an increase in aircraft flights, the average number of passengers per flight was lower. The firm also saw its operating loss increase by 53.2% to just over £170m. Despite this, Jet2 recorded a 44% gain in its cash balance to £1.5bn, excluding customer deposits. 

Potential headwinds 

After a mixed set of half-year results, business didn’t get any easier in the second half of the year. The omicron variant, which restricted travel at the tail end of 2021 and in early 2022, is likely to have negatively affected Jet2’s revenue in the second half. 

The bottom line may also have been squeezed by surging fuel prices. With costs rising, operating losses may have crept up. This could have a detrimental impact on the Jet2 share price. 

Although Jet2 has hedged a large majority of its fuel for 2022, alleviating some of the pressure on its operations in the short term, the company warned last year of further losses in the second half of its financial year due to rising costs for fuel and staff. In June, CEO Steve Heapy warned travellers of increasing prices next summer as it expects costs to continue to rise. Any mention of this within the forthcoming update could see investors react negatively.

More widely, the upcoming release may reveal a negative outlook for demand due to the cost of living crisis. With inflation continuing to spike in the UK, consumers may become more frugal. For Jet2, this could further contribute to a downward trend in demand. 

It is also expected that the war in Ukraine had a damaging impact on the company’s results. Flights to destinations in Poland were suspended in early 2022, and the conflict has also been a large contributor to soaring fuel prices. 

Struggles surrounding hiring staff, which Heapy allegedly recently blamed on Brexit, have also had a detrimental effect on Jet2’s operations, with a large percentage of flights continuing to be either delayed or cancelled.

Analysts bullish on Jet2

Despite the pressure these headwinds have placed on Jet2’s shares, analysts retain a positive outlook on the stock. According to the Financial Times, eight analysts offering price targets on the stock have a median target of 1,625p, with a high estimate of 1,800p and a low of 1,335p. These all represent a significant jump from the 918p closing price on 1 July. 

Analyst at Jefferies earlier this year had Jet2 as their top travel pick, stating that its pricing can offset inflation in 2022, putting it in a strong position moving forward. However, Jefferies added that Jet2’s fate beyond this year remains uncertain, prompting the broker to lower its price target from 1,800p to 1,750p.

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