easyJet (LSE: EZJ) shares struggled yesterday, sinking over 7% by the time markets closed. What’s more, over the past year, the airline stock is down a whopping 40%. The travel industry was decimated by the pandemic, with flights grinding to a near halt for a good chunk of 2020.
That being said, more and more countries are lifting their covid-19 travel restrictions as the world returns to normality. This should help easyJet shares rise throughout 2022. Is now the right time for me to buy some cheap shares? Or should I pass up on the UK airline giant? Let’s take a look.
Trading updates
The firm’s latest results showed that for the three months to 31 December 2021, revenues rose to £805m, up from just £165m for the same period in 2020. This was to be expected, but it does highlight the large-scale recovery the firm has seen since the worst parts of the pandemic.
easyJet is appealing to customers who are looking for cheap budget holidays. And the airline has announced it will be releasing a number of such holidays in an effort to drive up occupancy of its planes. This should help drive up revenues in the near future and should prove popular as we approach the summer holiday season.
A final positive for easyJet shares is the global outlook for passenger traffic. As my fellow Fool Charlie Keough mentioned, global passenger volume is expected to reach 3.4bn in 2022. This is almost double the passenger numbers seen in 2020, which is great news for easyJet. With it offering cheap deals, it could set itself aside from the competition, capitalising on these large numbers.
Headwinds for easyJet shares
While there are certainly positives for the firm, there are also some big risks ahead of it. Firstly, the dreadful events linked to the Russia-Ukraine war have led to disruption and international travel uncertainty. In addition to this, the price of oil has skyrocketed to well over $100 a barrel. This will filter down into easyJet’s fuel costs, reducing margins and placing pressure on revenues. I struggle to see how the shares will climb in this uncertain landscape.
In order to mitigate this risk, easyJet has announced that it has 60% hedged fuel for the current financial year, ending 30 September 2022. While this gives me some confidence, rising fuel costs are still a big worry in my opinion.
What I’m doing now
While the current share price drop does offer me a chance to grab some cheap shares, I think the risks outweigh the positives for the firm. It has experienced encouraging results and is set to benefit from increased footfall. However, I can’t help but worry about rising fuel costs and international travel issues. In my eyes, easyJet shares will struggle to overcome these risks in the near future. As such, I won’t be adding the shares to my portfolio today.
Dylan Hood 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.
