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Will earnings help the easyJet share price take off?

easyJet share price: easyJet's CEO Johan Lundgren

When announcing full-year earnings for 2021 back in January, easyJet [EZJ] said it had a “golden opportunity to continue to take market share” from its main competitors, who were focusing on long-haul flights while restructuring short-haul operations. 
Total revenue for the three months to the end of December was £805m, up from £165m in the first quarter of 2021, with passenger revenue increasing from £118m to £547m. Cash burn was cut in more than half year-over-year from £969m to £450m, despite the removal of furlough support across Europe. Meanwhile, pre-tax profit almost halved as well to £213m from £423m. 

Despite headwinds presented by the omicron variant, it was a strong performance. Johan Lundgren (pictured), CEO of easyJet, said in a statement alongside the results that he sees a strong summer ahead based on pent-up demand. Lundgren expects the company to return to near 2019 levels of capacity “with UK beach and leisure routes performing particularly well”.

Despite the positive outlook, shares in easyJet have slumped ahead of its Q2 earnings announcement on 12 April. The stock has been trending downwards since the earnings release on 27 January and has fallen 6.6% year-to-date to 519.20p at the close on 7 April. While it’s 24.4% above its 52-week low of 417.40p set on 7 March, the easyJet share price is trading significantly below its 52-week high of 1,095p, recorded on 7 May last year.

Will surging oil prices hurt sentiment? 

The recent selloff in easyJet’s stock price has been due to concerns that surging oil prices and rising prices in the wake of the Russian invasion of Ukraine could deter overseas travel.

EasyJet will provide a trading update for Q2 2022 on 12 April (the half-year 2022 results will be announced in full on 19 May). The update should be an opportunity for investors to find out what sort of impact the conflict in Ukraine may have had on passenger sentiment and bookings, if any, in the three months to the end of March.

Though omicron may have had a small impact on the financials for the second quarter, as of January, the company’s capacity was at 50% of 2019 levels, and this is expected to have ramped up through the quarter. Sales capacity for Q4, which covers the summer holidays, is near 2019 levels. 

Investors will also be paying close attention to any update on fuel costs, which were 60% hedged at $504 per metric tonne, which was considerably lower than the $840 spot price on 26 January. The fuel hedging situation may have changed to ride out any impact the conflict may be having on passenger sentiment. 

EasyJet’s strategy sets it apart 

Analysts remain largely positive on easyJet’s prospects in the intermediate to long term, with MarketBeat data showing the stock has 14 ratings: eight ‘buy’, four ‘hold’ and two ‘ sell’. The consensus target for the easyJet share price is 697.93p, which implies an upside of 34.4% from the 7 April closing price. 

Key to easyJet’s success has been — and will continue to be — flying in and out of major airports in western Europe, whereas other low-cost operators focus on smaller, less convenient airports, Hargreaves Lansdown analysts pointed out in a note published following the Q1 2022 earnings.  

“Operating in the middle of the market — between premium flag carriers and deep budget rivals — can be a difficult place to be. However, so far, easyJet seems to be navigating the industry's considerable headwinds rather well,” they wrote. 

“A focus on short-haul travel puts easyJet in a better position than its long-haul rivals when it comes to capturing returning passengers.”

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