EasyJet shares to benefit as demand for air travel picks up?

Despite the loosening of travel restrictions and increase in flying hours over the last few months the easyJet [EZJ] share price has struggled this year, hitting 18-month lows in the aftermath of Russia's invasion of Ukraine.

After two years of Covid-related travel restrictions, the war in Ukraine, which has exacerbated the surge in fuel prices and other costs, is yet another challenge for a beleaguered travel industry.

While we’ve seen a modest rebound in the easyJet share price since early March, the rally has stuttered on concerns over rapidly rising costs, even though passenger numbers have risen to 23.4m and revenue per seat is up 28.9% to £47.61.

Half-year results announcement lays focus on outlook

EasyJet said on Thursday said it expected to fly at 90% of its pre-pandemic schedule from April to June, and at 97% in the following quarter. For the second half of the year forward bookings are 76% sold for Q3, and 36% sold for Q4.  

For the six months to the end of March, group headline costs rose 117% to just over £2bn, while revenues rose 524% to £1.5bn. The headline loss before tax came in at £545m, in line with expectations. Load factor for the first half grew to 77%, up from 63.7% a year ago, with Easter seeing load factors rise to 90%. 

On fuel costs, easyJet has reduced its exposure to the current high price of fuel The airline is 71% hedged for the second half of the year at $619 per metric tonne, and is 49% hedged for the first half of 2023 at $701 per metric tonne.  

All of this suggests a promising outlook for one of the UK’s biggest domestic carriers. However, the first half wasn't without its challenges, with the airline taking the decision to sell and lease back another 10 of its A319 aircraft. That brings the number of aircraft leased out to 144, from a total fleet of 322 aircraft.   

With the half-year results painting a mixed picture, easyJet's shares fell 1% in morning trading on Thursday. 

Staff shortages

Earlier in May, easyJet said that it would remove seats from its A319 fleet to operate with fewer cabin crew as it seeks to prevent a repeat of this Easter’s travel chaos, when the budget airline cancelled hundreds of flights because staff were absent with Covid. 

The aircraft refits will limit capacity to 150 passengers, enabling easyJet to fly the planes with three cabin crew instead of four. The airline is trying to hire new cabin crew to replace the staff it laid off during the pandemic, but staff shortages are expected to remain a problem for the next 12 months.

Other challenges for easyJet include the rising cost of living, which could deter would-be passengers from flying, while the rising cost of doing business is likely to push up the company' s outgoings in the second half. 

Given the range of financial uncertainties, easyJet didn't provide financial guidance for the rest of the year.

Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.