easyJet (LSE: EZJ) shares are up 50% so far in 2023. And that makes the stock one of the FTSE 250 stars of the year.
But the price is not close to pre-Covid levels, down 70% in five years. So might we be in for a bull run now?
A few things make me think the year could be good for easyJet.
We had an update for the first half in April, and one key thing struck me. Passenger numbers are up 35% on the first half of last year. So bookings are still rising even in the face of 2023 inflation and interest rates.
I know companies tend to look on the bright side of things. But the board seems to think the passenger count for the full year should get very close to 2019.
In normal times?
And that’s in a tough year. Just think what we might see in a year when inflation is back to normal. And when there’s no more war in Ukraine.
Oh, and the update also says that “easyJet anticipates exceeding current market profit expectations of £260 million for FY23“.
That’s around twice the firm’s earlier guidance. So why did the share price barely move on the day? Well, for one thing, we’re still looking at a loss in the first half.
Now, passenger numbers are all well and good. Even a strong rise in revenue is a cause for cheer. But profits are still not close to pre-Covid levels.
Even that £260m profit outlook is way below the £430m pre-tax profit reported in 2019. That’s with fuel costs more than twice what they were the previous year.
Still, oil prices have dropped a lot from the peaks of 2022. So the second half could see things ease a bit.
If we look back over history, we see all sorts of things that can hit airline shares. Some years it will be stiff price competition for example, even if fuel is the big thing this year.
I don’t think the long-term outlook for aviation has ever been more hazy than it is now. Planes pump out a lot of CO2. And they do it high up in the air, where it can do a great deal of harm.
There’s been some progress in the use of hydrogen for aero engines. And easyJet wants to reach zero carbon by 2025. So that might be a plus. Or the costs of such a move might hit the bottom line. We just can’t tell yet.
It’s hard to put a value on easyJet shares right now. And that doesn’t help with buying decisions.
So those are the risks, and they’re real. But I’m still bullish about easyJet shares. And I think profit should be the key milestone this year.
It’s right to be wary while it’s still not here yet. But look at what happened when Rolls-Royce hit its key cash flow goal this year. The share price jumped.
I think the same could happen to easyJet shares when we see some profit.
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Alan Oscroft 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.