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Will Q3 earnings help lift the easyJet share price?

Grounded easyJet planes

The past few months have been turbulent for the easyJet [EZJ] share price, as Covid-19 restrictions batter what is usually a profitable summer holiday season.

The budget airline is set to release its third-quarter trading update on Tuesday 20 July. Will the latest numbers give easyJet’s share price the lift it needs?

EasyJet share price struggles to regain old highs

The easyJet share price was cruising at 1,508.5p at the close on 16 February 2020. However, as Covid-19 lockdowns shut down European air corridors, the stock slumped to just 475p on 29 March.

Gradually, sentiment improved as lockdowns eased and the vaccination programme stepped up the pace. By 2 May, the easyJet share price had climbed to 1,095p, as the carrier was buoyed by the government announcing a new “traffic light system” for foreign travel. From 17 May, countries would be placed on green, amber or red lists with different requirements for testing and quarantine.

The bullishness continued into easyJet’s interim results released on 20 May. It posted a better-than-expected first-half loss of £701m, compared with a £193m loss in the same period a year ago, helped by a £500m cost-cutting programme.

Total revenue dropped 90% to £240m, with passenger revenue falling 91%. Nonetheless, easyJet said it was “ready to ramp operations” from June onwards and was “well positioned for recovery”.

UK travel restrictions send easyJet shares nosediving

However, only last week, the popular Balearic Islands were moved from the green list – requiring no isolation period on return – to amber, meaning people not yet fully vaccinated must quarantine at home for up to 10 days. Key destinations Spain, Greece and Italy were left on the amber list.

EasyJet chief executive Johan Lundgren was left dumbfounded: “We cannot understand why the government is going to allow people to go to a nightclub without a mask and yet is not comfortable with people going to the beaches of Europe, where the infection rates are lower than in the UK.”

As a result, easyJet’s share price took a nosedive and sat at 823.60p at the close on 15 July. That’s down to continued changes and uncertainty around the traffic light system and a lack of international protocols to free up travel, despite the arrival of the EU digital Covid-19 certificate.

Another key challenge for the easyJet share price is rising oil prices, which substantially add to an airline’s costs. Brent crude is priced at circa $75 a barrel, compared with $65 in mid-May.

EasyJet third-quarter earnings expectations

This continued uncertainty around demand and rising costs is likely to feature in the third-quarter trading update and could further drag down easyJet’s share price. Any forward-looking commentary, such as winter demand forecasts, could also make a mark.

Analysts at Davy are uneasy. The stockbroker downgraded the easyJet stock to neutral from outperform on 14 July, and gave it an 850p price target. “We have revised numbers into the 20 July statement, where we expect losses larger than Q1 (more than £425m) with low activity levels and ramp-up costs.” It forecasts a pre-tax loss of £1.13bn in 2021 before a recovery to profit of £195m in 2022 and £505m in 2023.

For the easyJet share price to get back to the heights of last March, soaring passenger demand will be essential. Much of that relies on virus infection levels dropping and vaccination rates rising both in the UK and Europe.

Despite ‘Freedom Day’ on 19 July, when many Covid-19 restrictions are due to be lifted, popular destinations will have to still be added to the green list if Brits are going to eschew Cornwall for Corfu this summer.

What does seem clear is that there is a huge amount of pent-up demand among UK holidaymakers and travellers. EasyJet should benefit from this when travel restrictions are fully lifted as passengers ‘test the waters’ with short-haul trips. It’s not yet obvious when this will be, and the easyJet share price is therefore unlikely to gain altitude anytime soon.

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