EasyJet stock price reflects £133m cost of travel chaos: Is EZJ now a takeover target?

By Jenny McCall

It’s not excatly clear skies ahead right now for budget airliner, easyJet (EZJ). The travel group released its third quarter earnings on Tuesday, which showed the group has incurred £133m ($159m) in costs from flight cancellations, mainly caused by capacity and staffing shortages in the aviation industry.

As a result, easyJet (EZJ) reported a pre-tax loss of £114m. The group’s share price has been down 31% this year and rumour has it that a takeover bid is on the horizon.

easyJet (EZJ) share price chart

Possible take over bid

With easyJet (EZJ) facing stormy weather right now, analysts are expecting some type of takeover bid. Allegra Dawes, senior analyst at research firm, Third Bridge, indicated in an analyst note this week that an acquisition of easyJet is highly likely, especially after it rejected a bid from Wizz Air last year.

Despite the pre-tax loss reported in the earnings release, easyJet’s (EZJ) third quarter revenue rose to £1.8bn from £213m last year, reflecting strong increases across passenger and ancillary revenue. The group flew 87% of pre-pandemic capacity and expects this to rise to 90% next quarter.

Sophie Lund-Yates, Equity Analyst at Hargreaves Lansdown wrote in a note: “Away from how many flights are in the air and how full they are, easyJet (EZJ) has proved it’s incredibly successful at squeezing more revenue from existing custom.”

Strategic benefits

Lund-Yates highlights that there was no way easyJet (EZJ) could escape the labour and capacity constraints gripping the aviation industry, which meant it downgraded capacity targets for the third quarter. Unfortunately, the logistics that come with cancellations and booking crowds of people on to new flights means the path to profitability has been extended.

EasyJet (EZJ) also has exposure to one of the worst affected airports – Gatwick. While a lot of the operational issues are technically outside of easyJet’s control, those that had their summer getaways cancelled may not see it that way.

“There are some strategic benefits where easyJet’s concerned, it was able to rebook a lot of its customers on flights leaving the same day, and crucially, the golden goal of flying 90% of pre-pandemic capacity is back on the cards for next quarter,” Lund-Yates said. “This is an excellent step, but proof will be in the pudding, the group’s putting a lot of faith in its airport partners to have cleaned up the worst of the disruption.”

In addition, bookings have snapped back into shape, and at a price point that’s good news for easyJet (EZJ).

Rising inflationary pressures

“The question now is how well this new framework can be maintained as the cost-of-living crisis swells. As households continue to feel the pinch, we may well see another resurgence in the stay-cation trend seen during the pandemic as families try to economise,” Lund-Yates said.

According to Lund-Yates, airlines best positioned to encourage people to fly during these high inflation times are those that offer reasonable rates to short and medium-haul destinations.