Could easyJet shares soar by summer 2022?
The easyJet share price is 70% below its five-year high of 1,790p. While consumer fear of the Omicron variant is 'softening' demand for air travel, the short-haul carrier remains optimistic for next year.
easyJet (LON: EZJ) shares are some of the most traded on IG right now. The stock hit a five-year high of 1,790p on 22 June 2018, before sinking to 887p by 16 August 2019. Before the Covid-19 pandemic struck, it had recovered to 1,270p by 21 February 2020. But the easyJet share price hasn’t been the same since.
By 3 April 2020, it had collapsed 68.5% to 400p. Over the next year, it rallied to a high of 922p on 7 May 2021. Global vaccination programs appeared to be getting the virus under control. However, its since fallen to 534p, as short-haul travel continues to be assaulted by changing business practices and consumer fears over the Omicron variant.
easyJet share price: FY 2021 results
In Tuesday’s results, easyJet reported its second billion-pound loss in two years. The budget airline lost £1.13 billion in the financial year to September, with revenue down 52% to £1.45 billion. However, because of cost-savings, the airline lost slightly less than the £1.27 billion loss of FY 2020. And the short hauler has ‘118 aircraft on order with a further 59 purchase options and rights confirmed to further build on this in the years to come.’
The emergence of the Omicron variant has seen a ‘softening in demand’ for winter flights. However, bookings for H1 FY2022 are above what they were before the pandemic struck, and CEO John Lundgren believes that though ‘many uncertainties remain as we navigate the winter, we see a unique opportunity for easyJet to win customers and take market share from rivals.’ He also thinks easyJet has ‘transformed the business by optimising our network and flexibility, delivering significant cost savings while also step-changing ancillary revenue.’
The outlook beyond winter is more encouraging. The airline expects ‘increasing summer demand with Q422 capacity expected to be close to FY2019 levels. As the UK’s largest carrier, easyJet expects a significant benefit as the UK bounces back next summer.’
Lundgren believes this is due to a ‘very strong pent-up demand.’ And as a low-cost short-haul carrier, it’s possible that individual consumers are relaxed about potential flight delays, being stuck abroad, and the smaller amounts of money involved.
FTSE 250 and the rights issue
In June, easyJet was ejected from the FTSE 100 out into the FTSE 250. Its pandemic share price plunge means its no longer one of the 100 most valuable companies in the UK by market cap. And when a company leaves the FTSE 100, the share price is often artificially supressed. This is because many retail investors, institutions, and pension funds invest significant amounts into FTSE 100 trackers to mitigate market risk.
Then in September, the airline conducted a £1.2 billion rights issue. While this increased its share volume, the airline is now in a much stronger financial position going forward. And for long-term investors, it’s created some certainty, with the potential for significant rewards if the share price soars next year.
And the right issue means that easyJet now has £4.4 billion in liquidity, made up of £3.5 billion in cash and cash equivalents, and two undrawn lending facilities. Meanwhile, its net debt has fallen from £1.125 billion to £910 million, with no debt maturities due until FY2023.
As the airline spent £36 million per week in fixed costs and capital expenditure over the past year, it now has the finance in place to last for over two years with no additional income. This security may bring back some of the institutional investors who left the stock when it dropped out of the FTSE 100 index.
While the company is currently losing money, its performance next year could be very different. If the pandemic subsides, air travel could come back with a roar. It could re-enter the FTSE 100. But unfortunately for the easyJet shareholders, this key variable is out of its hands.
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