At 517p apiece, easyJet (LON: EZJ) shares remain 59% below their pre-pandemic crash level and have fallen by 44% since their May high of 922p last year.

And now all hopes for its share price recovery rest on a resurgent summer season.

easyJet share price: half-year results

Results brought broadly positive news for easyJet shareholders. Revenue increased by a substantial 524.2% to £1.498 billion compared to the same pandemic-ravaged half last year, where it made just £240 million. Within this, ancillary revenue rose by 632.9% to £513 million.

Capacity increased from 6.4 million to 30.2 million, driving passenger revenue up by 479.4% to £985 million, ‘as we flew increased levels of capacity compared to the same period last year.’ Passenger revenue per seat, a key metric, rose by 22.7% to £32.49.

And the FTSE 250 company highlighted that trade began to strengthen in February and March as Omicron restrictions were removed.

However, despite the positive trajectory, easyJet made another headline loss, this time of £545 million. While this is a better result than the £701 million it lost in the same half last year, headline costs rose by 117% to £2.043 billion, ‘primarily due to the increase in flown capacity.’

But the airline operator has reduced net debt by a third down to £600 million since September and has no debt set to mature until 2023. Further, it has a strong cash position, with a cash and equivalents balance of around £3.5 billion.

Further, the airline is currently hedged for 71% of jet fuel, and 29% hedged for H1 FY23, restricting the margin impact of currently sky-high oil prices. However, it told investors that higher fuel and USD exchange rates were ‘layering additional cost in H2.’

CEO Johan Lundgren exhorted that ‘easyJet has reduced its losses year on year, at the better end of guidance. The pent-up demand and removal of travel restrictions provided for a strong and sustained recovery in trading.’

Where next for easyJet shares?

easyJet says it ‘faces summer 2022 with optimism,’ and that customers are ‘returning strongly to us whilst also driving a step changed revenue capability.’

Lundgren expects ‘to operate 90% of FY19 capacity in Q3’ and revealed that easyJet has a ‘capacity on sale of around 97% of FY19 flying in Q4.’ He hopes this will leave the airline as ‘a winner in the post pandemic recovery of European aviation.’

And while business and city traffic remains below pre-pandemic levels, perhaps reflecting the cultural shift towards remote working, ‘in the second half of the year leisure and domestic routes have fully recovered with capacity at 113% and 104% of FY19 levels respectively.’

Meanwhile, ‘easyJet holidays is continuing to build, as the UK’s fastest growing holiday company and remains on track to carry >1.1 million passengers in FY22 with over 70% of the program sold.’ Overall, forward bookings are 76% sold for Q3 and 36% sold for Q4.

However, Lundgren admitted ‘it has been well documented that the industry is experiencing some operational issues so, as you would expect, we have been absolutely focused on taking action to ensure we have strengthened our operational resilience for this summer.’ This includes ‘proactively managing the schedule, reducing cancellations through various measures such as, boosting recruitment, and improving ID processing.’

However, the reputational damage is already done. With thousands of flights cancelled, missing luggage, and airport chaos, angry customers include stranded holidaymakers, business people, honeymooners, and in one extreme case, a customer who missed the chance to see their dying mother after their flight was cancelled.

But despite the disruption, easyJet argues ‘bookings continue to be strong as we have seen demand, post the impact of the Omicron variant, returning with the removal of travel restrictions.’

To cope with its staffing crisis, it’s even removing some seats, with easyJet now ‘operating our UK A319 fleet with a maximum of 150 passengers onboard and three crew in line with CAA regulations.’ The airline is legally compelled to provide one cabin crew member per 50 passengers.

Despite costing precious revenue, airlines are usually held liable for compensation for flight cancellations within two weeks of departure. And staff shortages is not an acceptable excuse.

HSBC analyst Andrew Lobbenberg Open My IG ‘what we can see, looks decent. Winter remains the unknown. Concerns over weakening consumer confidence in the autumn abound. We think there is a possibility that these fears may be overdone. We expect consolidation, aircraft and labour shortages combined to limit capacity and support yields in a challenging economic environment.’

But with inflation at 9% amid a worsening cost-of-living crisis, a question mark hangs over the anticipated summer boom for easyJet shares.

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*Based on revenue excluding FX (published financial statements, June 2020).

Charles Archer | Financial Writer, London
23 May 2022