Should I buy easyJet shares for my ISA as global travel rebounds?
In 2023, global travel volumes are expected to increase. There’s some talk they could even surpass pre-pandemic levels.
That’s great news for travel stocks like easyJet (LSE:EZJ). After all, most took a beating amid the fallout from the coronavirus pandemic.
So, with global travel rebounding, would buying easyJet shares for my ISA be a wise move? Let’s take a look.
Europe’s top low-cost, point-to-point airline
Over the last 25 years, easyJet has cemented itself as one of Europe’s leading short-haul airlines. It has 308 aircraft operating 927 routes across 34 countries and 153 airports.
The group uses its cost advantage, operational efficiency, and leading positions in primary airports to deliver low fares for passengers.
In my view, it’s not a stretch to say that companies such as easyJet have revolutionised European air travel by allowing passengers to book cheap flights across the continent.
A steadily improving financial performance
However, the airline expects headline pre-tax losses of £405m-£425m in the first half of 2023. However, it’s worth noting that the midpoint of this would be an approximately 24% improvement on last year.
In part, the losses reflect higher fuel and operational costs as the group restores capacity ahead of the summer. Reassuringly though, capacity should almost reach pre-pandemic levels in the peak summer season.
In easyJet’s second quarter, passenger numbers increased from 11.5m to 15.6m. On average, planes were 88% full. Thanks to this, total group revenue for the first half is expected to be around £2.7bn.
As a result, the airline expects full-year pre-tax profits to be ahead of market expectations of £260m.
The challenges that lie ahead
But despite positive trading over Easter and continued booking momentum for summer travel, I’m fairly certain it won’t be clear skies for easyJet.
Firstly, the geopolitical situation is still up in the air. This means further shocks to fuel prices cannot be ruled out. Rising fuel costs would make profit growth a real challenge for the group.
I think it’s also worth considering the impact of the cost-of-living crisis.
Admittedly, easyJet doesn’t seem to be suffering much from this at present. However, if the economic backdrop is worse than expected for the remainder of the year, I wouldn’t be surprised to see a reduction in bookings.
easyJet shares could be ready to take off
That said, easyJet’s growth opportunities are enough to outweigh the potential short-term volatility in my eyes.
In particular, the group’s ability to grow ancillary revenues has impressed me. This encompasses all those optional extras such as extra baggage, legroom, and food.
Ultimately, it represents a growing and highly lucrative area that I think easyJet can continue to capitalise on.
I also like that the airline prioritises finding leading positions at slot-constrained airports with high customer demand. This gives it the ability to be efficient with network choices and allows for a greater emphasis on maximising returns.
Thus, as easyJet continues to optimise its network, I think the group’s operating model is flexible enough to ensure capacity can be deployed in the markets where the strongest demand and returns are seen.
For these reasons, if I had some cash to spare, I’d happily buy some easyJet shares for my ISA and hold them for the long term to cash in on the global rebound in travel.
The post Should I buy easyJet shares for my ISA as global travel rebounds? appeared first on The Motley Fool UK.
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Matthew Dumigan 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.
Motley Fool UK 2023