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The easyJet (LSE: EZJ) share price has had a volatile few years. Despite a recovery in post-pandemic travel volumes, the airline’s stock has fallen 8.9% in the last 12 months, to £4.99 per share as I write on 28 January. Investors would be hoping for more after a 10.5% share price slide to start the year.
I don’t think many will be expecting the airline’s value to soar to the pre-pandemic heights of £15-16 per share. However, I do think there is potential to grow the current £3.8bn market cap if things go right.
Stock price under pressure
The easyJet share price has continued to be volatile. That’s despite a strong first-quarter result, with higher passenger numbers and revenues, as load factors (a measure of how full planes are) hit an impressive 92%.
CEO Kenton Jarvis expects second-quarter available seat kilometres (ASK) to exceed 14% growth. However, revenue per available seat kilometre (RASK) is expected to drop by 4% due to new and longer routes.
Overall though, I think the quarterly update shows the airline is in decent shape for FY25. Total seats are forecast to grow by 3% to 103m while ASK is forecast to climb 8% higher.
Factors for growth
Clearly, exceeding expectations is the key to boosting the airline’s valuation. Management has shown an ability to drive operational efficiency, and a continued focus on costs could boost margins and profitability. Similarly, an ability to pass on higher costs like jet fuel to consumers would be another bonus.
Any positive surprises in travel trends would also be a positive. That includes a better-than-expected winter travel period and good uptake on routes of strategic focus.
Of course, I’m looking at the stock with a 3- to 5-year time horizon. Investors would be hoping to see evidence of a step-change in behaviour rather than just a flash in the pan.
Strong demand is the key. Resilient budget travel spending despite reduced broad consumer spending could really drive the easyJet share price. This type of counter-cyclical earnings profile may entice investors that would otherwise avoid the stock.
Management raising dividends feels unlikely given the focus on growth, but that might also boost investor sentiment.
Potential risks
While investors will be hoping for more gains, there are risks to the stock. It has proven to be volatile in recent times and the travel industry is heavily reliant on leisure spending.
Economic challenges like higher interest rates, as well as volatile oil prices amid heightened geopolitical tensions, are other things that would be weighing on my mind before buying.
Then there’s the competition. Budget travel is a fiercely competitive industry with Wizz Air (LSE: WIZZ) and Jet2 (LSE: JET2) among others snapping at easyJet’s heels.
My verdict
While I believe the airline’s focus on operational efficiency and expanding its route network could propel the share price higher in 2025, I’m not convinced it’s the best place for my money right now.
I think the potential risks outweigh the potential benefits, so I’ll be looking to deploy any spare money into more defensive sectors like pharmaceuticals for the time being.
