Key points
- For the three months to 31 December 2021, losses halved year-on-year
- Some countries, including Norway, are completely removing pandemic entry restrictions
- Passenger numbers and load factors are improving
As the world gradually reopens, airlines are beginning to fly more people between different countries. One such example is easyJet (LSE: EZJ), a low-cost carrier based in Luton, England. With passenger numbers increasing and financial results improving, I think this company could be an exciting investment for the long term. Should I be adding it to my portfolio? Let’s take a closer look.
Improving conditions and the easyJet share price
A trading update for the three months to 31 December 2021 indicated an improved environment for easyJet. A year-on-year comparison reveals that losses halved from £432m to £213m. Furthermore, the number of passengers flown during this time was 64% of the figure from the same period in 2019. Indeed, the company recorded just 18% for this period in 2020.
In a similar vein, the trading update showed the load factor improved to 77%, up from 66% for the same period in 2020. Indeed, cash burn halved to £450m, year-on-year. The firm’s CEO Johan Lundgren stated that the business would be “returning to near 2019 levels” in the summer. If this turns out to be true, I think the easyJet share price could rise significantly.
Furthermore, both Berenberg and Liberum have ‘buy’ ratings for the company, with target prices of 750p and 800p respectively. At the time of writing, the easyJet share price is 665p.
A good recovery investment?
Many countries have started reopening their borders, with some removing pandemic restrictions altogether. Norway is one example of a country that has returned to normal conditions. Switzerland and Sweden have followed recently.
Furthermore, Spain relaxed its requirements for teenagers entering the country, who now require a negative test instead of a vaccination certificate. As more countries drop entry requirements, I think a domino effect could occur, leading to a much wider reopening. This should have a very positive impact on the easyJet share price.
It is worth noting, however, that any new pandemic variant could delay increased travel and spark trouble for the company. In addition, surging energy prices may lead to a rise in jet fuel prices for many airlines in the months ahead.
The firm has a competitive trailing price-to-earnings (P/E) ratio. It stands at 11.99 and this is low compared with both Wizz Air and Ryanair Holdings, that have ratios of 74.46 and 60.39 respectively. This may indicate that the easyJet share price is undervalued.
With more countries reopening, I’m optimistic about the company’s prospects. Recent results demonstrate the firm is going in the right direction, while the easyJet share price might be cheap compared to competitors. I will be buying shares for long-term growth following a catastrophic period for the travel industry.
Andrew Woods 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.
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