Is the easyJet share price primed for turbulence ahead of earnings?

EasyJet’s share price has been battered by a series of bad headlines surrounding the business, which include the news that it is cancelling flights at a greater rate than its competitors, alongside announcements that its CEO has abruptly departed. Analysts blame easyJet’s tactic of centring its flights around capacity-strained airports for this recent chaos, and it’s expected to report yet another loss at its upcoming results.

Amid ongoing disruptions to the airline industry, UK low-cost airline easyJet [EZJ.L] is due to release its latest set of financial results on 26 July.

The company’s share price is down 31.1% year-to-date as of 21 July, a performance that puts it behind competitors Ryanair [RYA.IR] and IAG [IAG.L], the parent company of British Airways and low-cost airlines Vueling and Aer Lingus. In comparison, Ryanair’s stock price has fallen 15% since the start of the year, while IAG is down 20.4%.

EasyJet has had a lot on its plate in recent weeks. Along with wider industry headwinds caused by rising fuel prices, the airline has been forced to cancel flights due to staffing challenges. EasyJet has cancelled 1,760 flights in the year to 8 July, which is five times as many flights as it cancelled in 2019, the last comparable year for travel, according to aviation data firm Cirium.

Analysts at Bernstein estimate that this disruption will cost easyJet in the region of £200m, and will mean that it will not be able to report a profit in this financial year.  

How has easyJet been performing?

When easyJet last reported on its financial performance in May, it said it faces “summer 2022 with optimism”.

The airline reported a headline loss before tax of £545m for H1 2022, a 22.3% reduction on the £701m loss it had posted a year earlier. Revenues were up 524.2% to £1.5bn, while costs also rose 117% to £2bn, “primarily due to the increase in flown capacity”, the airline explained in a press release.

But despite easyJet’s positive attitude looking to the month ahead, June and July have been months filled with bad news for the airline.

While all airlines have struggled with cancellations, easyJet appears to be cutting flights at a greater rate than other airlines. According to the Financial Times, in the week commencing 13 June, easyJet cancelled 146 UK flights — more than any other carrier.

This suggests that easyJet’s business model may be more fragile than its competitors in the current circumstances, given that its flight schedules are concentrated around airports like London Gatwick and Amsterdam Schiphol — both of which are limiting passenger numbers in July and August.

“They are in the wrong place for the present environment,” Andrew Lobbenberg, an aviation analyst at HSBC, told the Financial Times.

As a result of these struggles, easyJet has also recently lost its chief operating officer, Peter Bellew. His leadership of the airline and its chaotic approach to flight cancellations have been criticised in recent weeks.

On a more positive note, on 20 July easyJet’s founder Sir Stelios Haji-Ioannou gave the green light to the airline to purchase 56 new aircraft from Airbus [AIR.SE]. It’s a decision executives have been trying to push through for years, and it’s hoped the new aircraft will reduce the costs associated with maintaining older aircraft. The new planes are also 25% more fuel efficient — a huge plus given the current cost of fuel.

What’s expected for easyJet’s Q3 results?

When announcing H1 results in May, easyJet declined to provide any financial guidance for the months ahead, due to “the continued level of short-term uncertainty”.

Given that Gatwick airport is capping the number of flights per day to 825 in July and 850 in August, down from its typical capacity of 900, it is also uncertain if easyJet will be able to hit its goal of returning to 90% of 2019 levels.

Last week, analysts at JPMorgan downgraded easyJet shares to ‘underweight’ from ‘neutral’ and cut their price target on the stock by more than half, from 625p to 310p. “The disruption costs this year may be temporary, but we expect the inflationary pressures to remain,” the analysts said. “Fares may not be able to offset this if we head into a period of weaker consumer demand.”

Analysts at UBS feel more positive about the stock, and recently set a price target of 805p. Goldman Sachs has a price target of 710p on the stock, issued on 18 July, while Liberium Capital says it is a ‘buy’ with an 800p price target.

According to MarketBeat, the consensus among analysts is to ‘hold’ easyJet stock. However, five analysts have a ‘buy’ rating on it, compared to two apiece with ‘hold’ and ‘sell’ ratings. The consensus price target for the stock is 622.13p, which would represent a 62.5% upside on 21 July’s closing price of 382.9p.