Can pent-up demand lift easyJet shares after travel disruptions?

Travel chaos has dominated headlines in recent weeks, with low-cost airline easyJet forced to postpone multiple flights. However, despite staffing challenges and rocketing fuel prices, the easyJet stock price may not be hit as hard as might be expected, due to pent-up demand post-pandemic.

Ongoing travel delays and cancellations are causing chaos as the holiday season begins. Last week, low-cost airline easyJet [EZJ.L] made headlines for all the wrong reasons after it cancelled 60 flights on 9 June, sending the stock down 2.3%.

The carrier had reportedly already previously cancelled around 240 flights across the UK between 28 May and 6 June, including many scheduled from London’s Gatwick Airport. During the aviation disruption, which also involved British Airways and TUI Group, thousands of passengers were stranded abroad. Data company Cirium said airlines cancelled nearly 500 flights over the four-day platinum Jubilee break.

Since reaching a 52-week high of 727.8p on 10 February, the easyJet share price has slumped by 35.8% (through 9 June). In the 12 days following 28 May, it saw a steady decline of 12.1%, closing at 467.3p on 9 June. Year-to-date, the stock is down by 15.9%, and over the 12 months to 9 June it has crashed by 51.7%. Prior to the pandemic, it had been trading at above the 1,000p mark.

Positive predictions for easyJet capacity

Airline companies are still recovering from the impact of Covid-19, but earlier this year it seemed that easyJet, the UK’s second largest airline, was in a positive place. For the six months ending March 2022, it recorded 23.4 million passengers, up 471% from the same period in 2021, while its revenue for the period was £1.5bn, compared with £240m the year before. Its pre-tax loss of £545m was down from a loss of £701m.

Earlier in May, the company said it expected to operate at 97% of its pre-pandemic capacity between July and September, reported the Financial Times, with bookings surging to 6% above 2019 levels in the 10 weeks to 19 May.

Whether these ambitions can be met remains to be seen. Staffing and operational issues have been blamed for the current aviation crisis, triggered by a steep rise in demand for travel — up to 30,000 airline jobs have been cut since the start of the pandemic, according to the BBC. Rising fuel prices are piling additional pressures on airlines, meaning flights must be at full capacity to make financial sense.

Fellow budget airline Wizz Air [WIZZ.L] recently reported a loss for its last financial year, despite seeing increased demand for flights, and revenue jumping by 125% to €1.7bn.

Pent-up travel demand

EasyJet is having a turbulent summer, without question. Earlier this year the company did not give guidance for its full financial year, which ends in September, due to “the continued level of short-term uncertainty”. CEO Johan Lundgren said: “It is too early to tell, but there is uncertainty over how this plays out in the winter.”

The wider travel industry is also still recovering from the impact of the pandemic. Predicted global airline revenues for 2022 are below 2019 levels: $475bn compared with $666bn, according to management company Bain & Company.

However, certain tailwinds mean easyJet’s share price might not crash as far as headlines suggest. Historically, passengers have booked low-cost airfares during tough economic times, said the airline. “Even with a negative outlook, we know we will be in a better position than others,” said Lundgren.

The company may also be protected by rising oil prices, as it’s reportedly hedged for 71% of jet fuel, and 29% hedged for H1 2023.

There’s a pent-up appetite for travel post-restrictions. Even the prospect of delayed flights or expensive ticket prices, thanks to rising fuel prices, may not deter passengers from heading for airports. EasyJet reported forward bookings 76% sold for Q3 this year.

Wizz Air, which bid to purchase easyJet last September, recently forecast it was on track for its “largest ever summer”, despite current challenges.

However, tougher times may lie ahead as winter sets in. Edison Group analyst Neil Shah told the Evening Standard: “Consumer demand may well fall after the initial summer rush as people limit their spending in the face of the cost-of-living crisis.”

Eight analysts at MarketBeat rate easyJet stock a ‘hold’. However, the stock is rated a ‘buy’ by a consensus of 20 analysts polled by MarketScreener, with an average target price of 737.11p, which would reflect a 57.7% increase on its 9 June closing price.