Budget airline carrier easyJet (LSE:EZJ) has frequently made headlines in recent months, not always for the right reasons. The easyJet share price has fallen 51% since the turn of the year. We can put this down to the coronavirus pandemic, but does it have what it takes to recover?
In its half-year results posted yesterday, easyJet declared a pre-tax loss of £353m for the period. This included £160m for hedging against fuel price fluctuations, which backfired when fleets were grounded. It cut 4,500 jobs last month and intends to continue cost-cutting measures and streamlining where necessary in the coming weeks. Earnings per share are 88p and it has a price-to-earnings ratio of 8. It plans to cut its fleet size and has deferred delivery of new planes for several years.
easyJet issues more shares
The airline has been mired in controversy throughout the pandemic. It insisted on paying a £174m dividend to shareholders in March, then borrowed heavily from the state including a £600m loan from a Treasury and Bank of England fund.
It has now opted to launch a rights issue, which is an invitation to existing shareholders to purchase new shares in the company. This is worth £450m and is equivalent to 15% of easyJet’s share capital. It has raised £1.7bn during the pandemic and the rights issue should give it a cash balance of £3bn to see it through a nine-month grounding if required.
For the rights issue to go ahead it will require shareholder approval, which may not go down well with easyJet founder Sir Stelios Haji-Ioannou who has clashed with the board frequently over the years. Sir Stelios wants easyJet to cancel a £4.5bn contract with Airbus for 107 planes. He believes the order is unnecessary in the current climate and could even bankrupt the airline. He has accused Airbus of wrongdoing and offered a £5m reward to any whistle-blower providing proof that leads to the cancellation of the order. None of this is encouraging for the easyJet share price.
Future air travel outlook
Before the pandemic took hold, air travel was expected to rise in the coming years and easyJet looked poised for growth and strengthening profits. This is no longer the case and the easyJet board now expects it will be 2023 before previous air traffic levels return.
The FTSE 250 airline resumed flying last week, with a skeleton provision. Quarantine rules and air travel demand will determine how quickly activity can be ramped up. Holiday bookings are already back in play and appear to be encouraging so far.
easyJet is an instantly recognisable brand with a firm UK presence. It is often the go-to airline for cheap flights and its ruthless cost-cutting stance through the pandemic could pay off. I think this airline will eventually recover and for the patient investor, the easyJet share price looks cheap, but it may well get cheaper.
Stock market volatility is marked by daily fluctuations caused by shifting news reports. London stocks fell again in early trade today and the easyJet share price is down another 7%+ as I type. This volatility is giving savvy investors an opportunity to buy quality companies at knock-down prices. So would I buy easyJet? Well, the BAE share price is down again today, as is SSE, both companies I prefer to the airline stock.
