The easyJet (LSE:EZJ) share price has had a rough time since the pandemic began. But now that lockdown and travel restrictions are starting to ease, the firm might be on the verge of making a comeback. Last month, the management team released its third-quarter trading update. And since then, the easyJet share price has moved up by around 10%, despite last week’s tumble. This pushes its 12-month performance to just under 75%. But can this upward trajectory continue? And should I be considering this business for my portfolio? Let’s take a look.
The easyJet share price is starting to fly again
One of the biggest positive signs I spotted in the latest trading update is the massive 3,381% boost in flights compared to last year. There seem to be multiple contributing factors behind this stellar growth. First and foremost is obviously the lifting of many travel restrictions in the UK and Europe now that vaccines have begun rolling out. However, some of this growth can also be attributed to a shift in strategy.
It seems the management team has been moving flight capacity to Europe rather than the UK as travel restrictions are less strict there. Consequently, passenger capacity onboard has been steadily increasing over the last three months from 52% in April to 72% in June. Needless to say, that’s fantastic news for the business. And ultimately led revenues for the quarter to increase from £7.2m last year to £212.9m this year. So, I’m not surprised to see the easyJet share price take off. But there’s still a long journey ahead.
The risks that lie ahead
While these latest figures are undoubtedly promising, they still pale in comparison to pre-pandemic levels. A total of 2.99 million passengers were flown this quarter. That certainly seems like a lot. But it’s actually only around 17% of the passengers flown in 2019. And with the Delta variant of Covid-19 causing infection rates to rise, there’s a mounting level of uncertainty about how long before the business can return to its pre-pandemic passenger volumes.
Beyond this, the company is still firmly in the red, with third-quarter losses coming in at £318.3m. This is a slight improvement compared to last year’s £346.8m loss for the same period. However, it also means the firm is continuing to burn through its cash to keep its planes in the sky. Needless to say, that poses a significant threat to easyJet and its share price if it is unable to raise additional capital or return to profitability in the future.
The bottom line
The unprofitable nature of the business is somewhat concerning. But I do find it encouraging to see that the firm’s cash burn has reduced to £34m per week. That’s actually lower than the previously provided guidance of £40m. In my eyes, that indicates smart capital allocation decisions. And with £2.3bn of cash on the balance sheet, easyJet should have enough resources to spare to see it through the remainder of the pandemic (assuming expenses don’t rise again).
Overall, I think the worst has passed for the easyJet share price. And with UK airports reporting passenger volumes at the highest point since the pandemic began, it looks like the company is on course for making a steady recovery. Therefore, I would consider adding some shares to my portfolio today.
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Zaven Boyrazian 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.