The easyJet (LSE:EZJ) share price is up almost 6% in a week, but it remains down 45% in a year. Airlines have been among the hardest hit by the pandemic and with further restrictions in place, the dark winter is not over yet. So, with the vaccine rollout full steam ahead, does the future look brighter for easyJet and should I now consider adding it to my Stocks and Shares ISA?
Survival of the fittest
Earlier this month, easyJet secured a £1.4bn loan for a five-year term. This will significantly improve its chances of surviving the pandemic nightmare. The loan is underwritten by a syndicate of banks and buoyed by a partial guarantee from the UK government. It’s also secured against aircraft in easyJet’s fleet. However, it also comes with a clause that the firm can’t pay any dividends during the life of the loan. This may make easyJet a stock worth investing in for growth or momentum investors, but for value investors it’s unlikely to have much appeal.
Warren Buffett is avoiding airlines
Value investing is encouraged by many successful investors, including billionaire Warren Buffett. It involves the investor buying shares in a stock considered to be below fair value, hoping it will be worth more in the future. Usually businesses that do well will reward their shareholders with dividends. They pay these dividends annually, sometimes split into multiple payments throughout the year. Receiving dividends can help an investor build a substantial amount of money. That’s because the dividends are like an interest payment. Over time and with the power of compound interest, the initial sum can increase exponentially.
So, without the likelihood of dividends for at least five years, it puts easyJet in a less attractive position to value investors. It’s also worth noting that Buffett sold his airline stocks in May 2020 as he no longer saw them as a viable long-term investment.
Poised for growth
Armed with this additional liquidity, easyJet should, in theory, be able to weather the storm and emerge from the pandemic ready to soar. Signs are already appearing to back this as easyJet says its summer bookings are up by 250% on last year. However, the budget airline now has even more debt and that’s not very appealing to investors.
easyJet’s share price received a boost last week when Norwegian Air announced it’s ditching its budget long-haul routes to escape bankruptcy proceedings. This momentarily benefited the easyJet share price as it frees up more slots at Gatwick, but these won’t necessarily go to easyJet.
Share price volatility continues
Vaccines from Pfizer, AstraZeneca, Moderna and Johnson & Johnson are now all in, or approaching, circulation. This presents a more promising outlook for the future. Nevertheless, we can’t get ahead of ourselves as rates of infection are mounting. And the presence of additional strains is causing further concern.
UK GDP shrank by around 2.6% in November, which is much better than the 5.7% decline economists were expecting. This ability for consumers to adapt to the restrictions is reassuring. And it bodes well for a promising bounce-back later in the year, once the vaccine rollout is nearing completion. For this reason I expect the easyJet share price will continue to fluctuate in the coming weeks. However, without a dividend to give long-term shareholders reassurance, I’m not planning to add it to my portfolio.
