The easyJet (LSE: EZJ) share price was maintaining altitude this morning despite it announcing another massive pre-tax loss for the last financial year. Does the lack of a significant fall mean that the battered FTSE 250 member can stage a recovery before the end of 2021? Here’s my take.
Massive loss
To be frank, today’s numbers are redundant beyond serving as a reminder of just how bad things have been for the budget airline. Unfortunately, the Covid-19 pandemic is just so fast-moving that there’s scant guidance for investors like me as to whether the shares might be a buy now.
As one might expect, easyJet was keen to emphasise what it had done to mitigate the damage wrought by Covid-19. This included reallocating aircraft to “higher contributing bases” and instigating cost savings where it could. Even so, total revenue more than halved to £1.46bn over the 12 months to the end of September. The only slight consolation here is that the £3bn of revenue seen in the previous year was boosted by a first-half being unaffected by the pandemic. So, a significant reduction was always on the cards.
Naturally, easyJet’s bottom line wasn’t in great shape either. A headline pre-tax loss of almost £1.14bn was worse than the £835m loss endured last year. That’s despite a 33% reduction in costs. Notwithstanding this, it was ahead of consensus expectations. This may be one reason why the easyJet share price hasn’t dropped like a stone today. Another is the (fairly) upbeat tone with regard to the outlook for FY22.
Recovering demand
This morning, CEO Johan Lundgren said that the steps taken by the company over the past year, coupled with a strong balance sheet “provide easyJet with renewed strength to manage any further Covid-related travel disruptions”. He went on to say that the budget airline had witnessed “an encouraging start” to the new financial year. Demand for flights over the peak winter holiday period was recovering with capacity predicted to be around 70% of 2019 levels in Q2. The Luton-based business expects this to be “close to FY’19 levels” by next summer.
As encouraging as all this sounds, there’s no shortage of reasons for me to be cautious. As the company itself reflected today, it’s far too soon for anyone to know just how much of an impact the new Omicron variant will have on travel. Only this morning, Moderna CEO Stephane Bancel suggested that current vaccines would not be a match for the new variant and that it would take months to get one ready that is.
Put simply, easyJet can do everything right and still struggle. This helps explain why the share price has tumbled 27% over the last 12 months. It’s also why I suspect that asking for it to recover before the end of 2021 may be asking too much.
easyJet share price: too much risk?
I don’t doubt that demand for easyJet stock will fly at some point as the economy rebounds and demand for holidays inevitably rockets. The question is whether it’s worth the not-insignificant amount of hand-wringing that’s likely to precede it.
For my part, I’m staying on the sidelines. Taking a contrarian stance now might result in great returns in time, but I think there are far less nerve-wracking ways of making money in the markets.
