Like most airline and travel stocks, Jet2 (LSE:JET2) suffered badly during the pandemic. The lockdowns meant that demand for flying evaporated. Not only that, but it has been a much slower path to normality than many expected. Yet given what the Jet2 share price currently trades at, I think investors can find several reasons for optimism going forward.
Summer bookings look promising
The main way to gauge how well the airline is recovering is by taking a look at summer bookings. This is the most popular time of year for people to fly and take a holiday. By comparing the figures year on year, we can note see strong demand is.
In a trading update late last month, the business said that “on sale seat capacity for Summer 2023 is currently 7.2% higher than Summer 2022 at 15.26m seats”. This promises a stronger trading period ahead. Given when this data was recorded, I’d expect further bookings to flow in over the course of the next month.
It may seem obvious but it’s worth saying — bookings boost revenue, and higher revenue makes it easier to filter down to a profit. In turn, that should help to lift the share price as the value of the company increases.
Lower pandemic-linked risks
Even though Covid-19 restrictions were mostly lifted during the 2022 financial year, stocks like Jet2 struggled as people were cautious about heading abroad. This was a large factor in the loss before tax of £388.8m in the last full-year.
However, this sentiment has really shifted, allowing the business to flip to a half-year profit in September. I feel this momentum will carry forward this year, with very few (if any) pandemic-related risks associated with future trading.
The impact of external factors
Last year, disruption from wider airline industry strikes also caused potential lost revenue from cancelled flights. Even though this remains a risk, the business is investing to try and eliminate the impact of third parties. For example, it has taken over handling operations at Bristol and Newcastle, which means that it’s in control of seven out of 10 bases.
Another external factor that will help Jet2 is lower oil prices. The company should benefit from WTI oil being at $69 per barrel, very close to the lowest price in the past year.
One concern is the rising cost base due to inflationary pressures. This was flagged up in the trading update. Ultimately, even if revenue does increase, if the cost base also increases then it negates the benefit.
Assessing both the ups and downs, I feel the Jet2 share price could see a strong performance this summer and beyond. If further updates come through that upgrade forecast earnings, we could see a swift jump in the stock. As a result, I think it’s a company that investors should consider adding to their portfolios.
The post 3 reasons why the Jet2 share price is primed for take off appeared first on The Motley Fool UK.
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Jon Smith 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.