Airline Easyjet (LSE: EZJ) is known for its no-frills service. But there also haven’t been any frills (or thrills) about its performance on the stock exchange lately. Over the past year, the Easyjet share price has tumbled 23%, at the time of writing this article last week.
After this fall, could bargain hunters push up the price in the first month of 2022 and beyond? Or will the share price keep losing altitude?
Challenges for the share price
The share price fall reflects investor concerns about the outlook for the airline’s business performance. Coming into 2021, the rollout of vaccines had created a wave of optimism about a surge in demand for travel. That boosted shares in firms such as Easyjet. Its share price more than doubled between the end of October 2020 and May last year.
Since then, I think some of that optimism has waned. Vaccines are now seen as one part of a pandemic-management approach that has involved stops and starts when it comes to travel. Mounting challenges to travellers — such as costly testing, complex paperwork and sudden policy shifts — have made many former fliers reassess their travel plans. Sudden border closures and rule changes have piled new costs onto airlines as well.
That has all weighed on the firm. Formerly known for its strong balance sheet, it raised extra funds last year. Although prudent, that looks to me like a sign of weakness not strength. It’s now only planning to get back to its pre-pandemic capacity by 2023 – and even that could turn out to be optimistic.
Reasons to be optimistic
In November, Easyjet reported a pre-tax annual loss of £1.1bn. Despite that, I do see some grounds for optimism around the outlook for the company.
It is planning on flying at almost two-thirds of its pre-pandemic capacity in the current quarter. While that is much reduced, it is still far ahead of what we saw in the quietest months of 2020. The company’s strong liquidity gives it some financial headroom while waiting for a fuller recovery of passenger demand. It has plans for substantial extra Summer capacity to capitalise on renewed holiday demand too. Meanwhile, the company’s cost-cutting could help it improve profit margins if a full demand recovery does happen.
Where next for the Easyjet share price?
Last month, the company’s chairman bought 27,000 shares and the finance chief purchased 15,000. That suggests they feel bullish about the company’s prospects.
January understandably focuses investors’ attention on the coming year, not the past one. With a much reduced share price and plans for a strong Summer 2022, I definitely see reasons that could support a January rally in Easyjet shares. On top of that, mounting evidence that the latest pandemic variant is less dangerous than feared could boost hopes for an increase in travel demand. So I reckon the Easyjet share price could increase in January.
I won’t be buying it for my portfolio though. There are simply too many uncertain variables for my risk tolerance. From the risk of further travel restrictions to limited forward visibility on bookings, it’s hard to feel confident about Easyjet’s performance even a couple of months from now, let alone a year from today. That is an issue that risks pushing the share price even lower.
Christopher Ruane has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.