The easyJet (LSE: EZJ) share price has been on a wild ride over the past 12 months. It’s easy to understand why. To try and control the spread of coronavirus around the world, governments have introduced travel restrictions. These have devastated the demand for air travel.
And while the outlook for specific sectors of the economy has started to improve over the past few months, the outlook for the airline industry remains incredibly uncertain.
Indeed today, the easyJet share price and that of the company’s peers are trading sharply lower on speculation the government could extend the international travel ban.
Here at the Motley Fool, we are long-term investors. That means we consider the long-term potential of a business rather than speculate about what could happen in the next few weeks or months.
As such, when reviewing easyJet, I try to take into account its long-term outlook.
Over the long run, I think the company has incredible potential. Its brand is one of the most established in the European aviation industry, and while it may not have the best record of customer service, its reputation is better than other low-cost peers.
The airline’s average fee is also more than double that of its closest competitor Ryanair, but customers get much more for their money.
Unlike many of the company’s European peers, easyJet also ended the crisis with a strong balance sheet. As a result, the organisation has been able to avoid taking a government bailout or collapsing.
The easyJet share price as a long-term investment
These qualities lead me to conclude that easyJet could be an excellent long-term investment. In my opinion, the best long-term investments are those companies with substantial competitive advantages and robust balance sheets. My research shows easyJet has both of these qualities.
That’s not to say the business doesn’t have its risks. The airline industry is incredibly competitive. There’s a high chance a fares war will break out after the pandemic as operators fight for customers. This would have a detrimental impact on the group’s recovery.
Analysts have also expressed concern about the group’s expansion pace. This could leave it with a more extensive-than-needed fleet and a weak balance sheet.
So far, the company has managed to avoid these challenges, but there’s no guarantee this will continue to be the case.
A long-term buy
All of the above leads me to the conclusion that easyJet is a long-term buy. However, the group’s short-term outlook depends on how quickly the global economy recovers from the coronavirus pandemic.
If the international travel market picks up towards the end of this year, the value of the stock may increase dramatically. If not, the stock could continue to fall.
Nevertheless, despite this uncertainty, I’d buy the stock for my portfolio today based on the qualities outlined above as a long-term investment.
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Rupert Hargreaves 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.