Are Easyjet shares a recovery buy?

Losses narrowed at easyJet as European travel returned to something approaching normality post the Covid-19 lockdowns of 2020 and 2021. The low-cost airline is seeing a pick-up in the holiday sector, with bookings at 70% and what it terms a “strong and sustained recovery in trading.”

In its first-half trading update, management said they expect losses to fall to between £535m and £565m in the six months to the end of March. Last year the airline reported losses of £701m for the first-half of 2021.

The load factor in the second-quarter was at 78% due to customer concerns over Omicron. However, the airline said it operated at 80% of 2019 capacity in March this year.

easyJet’s ‘strong recovery in trading’

"easyJet's performance in the second quarter has been driven by improved trading following the UK Government's decision to relax testing restrictions with an extra boost from self-help measures, which saw us outperform market expectations,” chief executive Johan Lundgren told investors.

"Since travel restrictions were removed, easyJet has seen a strong recovery in trading which has been sustained, resulting in a positive outlook for Easter and beyond, with daily booking volumes for summer currently tracking ahead of those at the same time in FY19.

"We remain confident in our plans, which will see us reaching near 2019 flying levels for this summer and emerge as one of the winners in the recovery."

The company also reassured investors in the light of the conflict in Ukraine that it has very little exposure to Russian airspace, Belarus or the Ukraine.

Fuel cost and staff sickness headwinds remain

The rampant rise in fuel prices is likely to be a headache for the company going forward, however. On the positive side, easyJet says it currently has 64% of its fuel for the second-half of the year hedged at $571 per metric tonne, reducing exposure to the current fuel price.

Crew members going down with Covid-19 is also affecting operations, with up to 20% of staff off sick at some of their bases. Around 5% of flights have had to be cancelled. The difficulty is that this has come as bookings are up due to the summer season and the relaxing of travel restrictions in a number of European destinations.

Analysts at Goodbody said the update from the airline was “as good as we might have hoped.” They expect easyJet to make a small profit for the full-year.

Meanwhile Allegra Dawes, senior analyst at Third Bridge, said fuel costs remain a concern. "[easyJet] faces rising costs due to fuel pricing and operation ramp up and continued operational difficulties as a result of Covid-19 and staffing shortages. The road to a full recovery remains long and bumpy."

She also noted that “continued delays, cancellations, and frustration for passengers” could be on the horizon, which could weigh on investor sentiment.

Shares in easyJet are down 30% in the past year and trade for less than half their value before the pandemic. Back in December 2019 before Covid-19 took hold, the shares hit 1,199p.

Analysts at Liberum Capital reiterated their buy recommendation on the shares with a price target of 800p.

At 551.8p, the shares may indeed see further turbulence in the short-term – further travel delays are expected over Easter. However, they are a long-term buy on recovery hopes.

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