It has been a bad year for shareholders in easyJet (LSE: EZJ), with the company valuation falling 44% in 12 months. But that is just the latest chapter in a bad run for the easyJet share price. It has now lost almost three quarters of its value since June 2018.
However, aviation demand is recovering. For much of the world the travel market is starting to look much more like it did before the pandemic. So could 2022 be the year when the easyJet share price starts to gain altitude again?
Improving trends
The company’s most recent trading statement gives grounds for optimism. Although the firm still recorded a headline loss before tax of £114m for its third quarter, that was far better than the £318m it lost during the same period last year.
Passenger demand is back in a big way. The company carried 22m passengers during the period, compared to just 3m during the same quarter the year before. One of the things the company did during the pandemic was to reshape its route network and capacity so it was ready to spring back to life once people were flying more again.
I think the company is now seeing the benefit of that forward planning. Its planes flew with 88% of seats taken. A focus on increasing ancillary revenue from passengers by selling things like insurance is also paying rewards. Such revenues per passenger are up by more than half compared to before the pandemic.
In the current quarter, the company expects to have capacity back to 90% of pre-pandemic levels, with 90% of seats taken. On the demand side of its business, at least, easyJet is starting to get close to the business it used to be.
easyJet share price risks
But for an airline to make money, it does not just need to fly passengers. It needs to fly profitable passengers.
While demand may be back, the cost side of the business now is different to what it used to be. The airline industry is wrestling with high fuel costs, which could continue for years. On top of that, disruption at many airports is adding costs for operators. easyJet set aside £133m last quarter because of such disruption.
The past several years have imposed big costs on easyJet that I think have scarred the business for the long-term. The company now has almost twice as many shares in circulation as it did in 2019. So even if the business recovers fully to its pre-pandemic levels, that does not mean the earnings per share would match what we saw back then.
Ready for take-off?
I think the easyJet business performance is headed in the right direction. Management seems to be doing a good job getting the airline back into shape. I think that could mean 2022 might start to see a turnaround in the easyJet share price.
However, as with many airline shares, there are so many factors outside the company’s control that can affect both demand and costs. The past several years have shown that very clearly and painfully for existing shareholders. So I will not be buying the shares.