Budget airline easyJet (LSE:EZJ) has had an up and down year in 2020 (pun intended). I have always considered airlines to be a risky proposition due to external factors such as fuel prices. With the recent vaccine news, cheap airline stocks, and the potential for pent-up holiday travel demand, I have decided to review my position. The easyJet share price is surging but is it worth spending my hard earned cash on EZJ shares right now?
easyJet share price ups and downs
The EZJ share price skyrocketed an impressive 65% last month. This was mainly due to the Covid-19 vaccine breakthroughs. These vaccines have renewed hopes across the world that life may return normal in the near future. Due to this, investor sentiment definitely increased in my opinion.
Prior to the market crash back in March, EZJ shares were trading close to 1,500p per share. Approximately a month later and the global pandemic decimated the easyJet share price. It decreased nearly 70% and shares could be picked up for just 475p.
Economies in lockdown and fleets grounded for months on end impacted EZJ massively throughout the summer. As I write this, its share price is STILL rallying. I can currently buy shares for 895p per share. This is an 11% increase from the end of November price point.
Position in the market and FY performance
easyJet does possess some key qualities which offer it a competitive advantage in its market in my opinion. It is strategically well positioned in key European markets. It also possesses strong customer retention figures. With its positioning and customer retention figures, EZJ tends to spends less on marketing which keeps costs down for the budget airline. Furthermore, easyJet focuses on short haul flights rather than longer journeys. Analysts predict that the short haul market will experience a quicker recovery than its long haul counterpart which could be good news for EZJ and investors alike.
The easyJet share price was struggling before its surge in November. EZJ reported mixed FY results in November too. The key takeaways for me were a 50% reduction in customer numbers compared to last year. EZJ’s capacity dropped by a huge 47%. Revenue was down over 50% and a pre-tax loss of over £800m compared to a profit last year made for disappointing but expected reading.
What I’m doing now
I mentioned earlier that the airline industry has been too risky for me in the past. Despite the price surge, a tempting price which is still rallying and the prospect of pent-up demand, I am not going to spend my hard earned money on EZJ shares right now.
Back in May, Warren Buffett confirmed he sold all his airline stocks. He conceded that the airline industry had changed but even he did not know just how much or how exactly. One thing that has not changed for me is the fact that airlines are hostage to too many external factors such as oil and fuel prices they cannot control. Forget the easyJet share price, I prefer this FTSE 100 stock as part of a diverse portfolio.
Jabran Khan 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.