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Why are easyJet shares falling?

Despite an improved outlook, British low-cost airline easyJet saw its stock dropping to a one-month low.

  • easyJet (LON: EZJ) share price falls further to 617.9p per share on Wednesday (13 October)
  • The airline estimated that its FY2021 losses could exceed £1 billion
  • Analysts on average target the stock to climb to 771.56p
  • Keen to take advantage of easyJet’s falling share price? Open an account with us to short the stock now.

Expected losses drive EZJ shares lower

UK-based easyJet’s stock slumped 3.5% to close at 625.4p on Tuesday after the company predicted that its annual losses may exceed £1 billion, despite easyJet’s brighter outlook. The last time the shares finished below that level was in mid-September.

Reuters quoted Goodbody analyst Mark Simpson as saying the share price decline may indicate that some investors were worried about the broader economic situation for consumers. However, Simpson said he still believes ‘that the demand picture is there for summer 2022’.

Still, most analysts remained optimistic about EZJ shares, with 16 recommending ‘buy’, eight saying ‘hold’, and one with a ‘sell’ call, Bloomberg data showed. Their average target price was 771.56p.

easyJet says recovery is ‘underway’

On Tuesday, the low-cost airline forecast that the growing passenger volumes and the easing of Covid-19 travel curbs will help narrow its annual losses during the pandemic.

easyJet will report its financial results on 30 November 2021, for the fiscal year ending September 2021.

It expects its pre-tax losses for the year to shrink from a year ago, but still amount to between £1.14 billion and £1.18 billion. Consensus estimates among analysts is for a loss of £1.175 billion, Reuters noted.

Pre-tax loss had ballooned to a record £1.27 billion in the previous financial year as the pandemic decimated air travel across the globe.

Pointing to the return of business and leisure travel, easyJet chief executive Johan Lundgren said: ‘It is clear recovery is underway.’

According to easyJet, it has enjoyed a surge in sales momentum after Britain loosened its travel restrictions.

The UK government last week removed 47 countries from its red list, meaning that arriving passengers no longer require a quarantine hotel in Britain, AFP reported. London also lifted its advice against non-essential travel to another 42 destinations, and would ease Covid-19 testing measures.

Read more: Beginner's guide to day trading

eayJet boosts capacity amid travel rebound

With the jump in bookings, easyJet will increase its capacity for this October-December period to about 70% of pre-pandemic levels in 2019. Capacity gains will also continue in 2022, Lundgren said.

The company noted that sales for destinations such as Egypt and Turkey have soared, and capacity to the Canary Islands is at 140% of 2019 levels for the UK school holidays this month.

‘We have seen city breaks beginning to return, alongside growing demand for leisure travel from customers looking for flights and holidays to popular winter sun destinations,’ Lundgren said.

Bernstein analysts wrote: ‘The increased steer on capacity bodes well for the winter season.’

However, the airline cautioned that visibility remained limited as customers were booking closer to their travel dates. That means easyJet could not provide guidance for 2022.

Moreover, the aviation industry is under pressure from higher oil prices, Lundgren noted.

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