The travel industry in the UK was all geared up for a busy summer season after the COVID restrictions were lifted – but players like EasyJet (GB:EZJ) have since been hit by strikes, putting their COVID recovery in peril.
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The news of this summer’s strikes have further depressed share prices which had already taken a battering. EasyJet’s shares are down by 44% in the last year.
The stock was also recently hit when its chief operating officer, Peter Bellew, resigned. This will put more onus on the chief executive, Johan Lundgren, to turn around things at the airline.
Other airlines, including Ryanair (Nasdaq:RYAAY) and British Airways (GB:IAG) are also struggling with staff shortages resulting in flight cancellations. In the last year, Ryanair stock is down by 30% and IAG’s (which owns British Airways) stock is down by 32%.
Choppy rides
EasyJet’s staff planned strikes in Spain have impacted the popular route from the UK to Spain during the holiday season. Staff are at loggerheads with the company over increasing salaries to match counterparts in France and Germany.
The company has already witnessed two rounds of strikes in July, and one more is expected by the end of this month. Around 450 workers from Spain will take part in this.
The company said: “Should the industrial action go ahead, there could be some disruption to our flying program to and from Malaga, Palma, and Barcelona during the strike period, but at this stage, easyJet plans to operate its full schedule and we would like to reassure customers that we will do everything possible to minimise any disruption.”
Positive outlook
Looking at the road ahead, these headwinds are temporary and demand will increase in the long run. As the cost of living crisis grips the nation, more and more passengers will opt for low-fare flights in the coming years. The demand for affordable flights is not going anywhere.
Another headwind for the industry is the rising fuel prices, which could hurt the profitability of airline companies. For EasyJet, this issue is taken care of as the company uses jet fuel derivatives to hedge against any sudden changes in the prices of the fuel. This helps the company to calm the volatility in its profits.
EasyJet is currently 71% hedged for the second half of FY22 at $619 per metric tonne, 49% hedged for the first half of FY23 at $701, and 20% hedged for the second half of FY23 at $807. This is much lower than the spot price of fuel at $1,225 as of May 2022.
As far as the outlook is concerned, the company’s Q3 and Q4 load factors (the percentage of available seats which have been filled) are expected to be more than 86% and 90%, respectively. The load factor for the first half of 2022 was 77%.
Blogger Sentiment
According to the TipRanks Tool, financial bloggers are 90% bullish on the stock of EasyJet.
View from the City
According to TipRanks’ analyst rating consensus, EasyJet stock is a Moderate Buy. The company has a total of 10 ratings, including six Buy, two Hold, and two sell recommendations.
The average price target is 674.2p, with a high and a low forecast of 848.6p and 350.8p, respectively. The price target implies around 72% of upside potential.
UBS analyst Jarrod Castle is extremely bullish on the stock. His target price on the stock is 805p, which is 106% higher than the current price.
In the period between October 2020 and June 2021, EasyJet was Jarrod’s best-rated stock with a return of 104.5%.
Conclusion
Airline companies are enjoying a period of huge demand after the pandemic. Apart from short-term operational challenges, there is a positive case for more revenues and profits for EasyJet, making the stock much more attractive.
