EasyJet (LSE:EZJ) has been one of 2020’s biggest losers, and the share price has suffered massively. I am still avoiding it in 2021, despite the vaccine rollout and potential for some form of normality to resume this year.
easyJet share price with a 2020 to forget
In my view, EZJ does not offer value at current levels, nor does it fill me with confidence as to its potential to recover. In 2020, the easyJet share price lost approximately 50% of its value. As I write, I can purchase shares for close to 730p per share. This major decrease has been in the main due to the pandemic, which saw easyJet’s fleet grounded and holidays cancelled as travel restrictions took place across the world.
Could the vaccine rollout prompt a recovery in 2021?
Now that the vaccine is being rolled out could there be an opportunity to pick up cheap shares and watch the easyJet share price increase in 2021? I don’t believe so and here’s why.
Firstly, easyJet recently announced a change in strategy whereby it would move away from competing with other budget airlines and try to take on national carriers. I think this is totally the wrong move. The budget airline market is easyJet’s bread and butter and is what it built its foundation on.
Next, performance has been declining due to the pandemic. In an update to 30 September, easyJet reported a 50% decrease in passenger numbers. It also announced a pre-tax loss of over £1.2bn, which is concerning but understandable based on the industry as a whole for the past year. I believe it could be a long amount of time before passenger levels and performance return to previous levels.
Finally, easyJet’s high cost base concerns me. This is the average cost per passenger. I found it to be substantially higher than at some of its competitors. In 2019 Ryanair’s average cost base was just €31 per passenger whereas EZJ’s was €53. Furthermore, EZJ’s cost per seat rose from €63 in 2019 to €86 by the end of 2020. I am concerned by these statistics and believe these figures could rise in 2021.
Plenty of risk and not much reward
As with any stock that has suffered, there is a potential for easyJet to bounce back. It could be argued easyJet is a contrarian buy for the longer term and the aviation industry will bounce back eventually. EasyJet is one of the biggest players in its market and has been established for a long time. Management has focused on boosting liquidity and cut its dividend too. It has managed to raise over £3bn. This tells me there is still some investor confidence in easyJet and its long-term viability.
Despite these positives, I am going to steer clear of the easyJet share price. I believe 2021 will follow the trend of 2020 for all airline stocks. The vaccine rollout will be completed in September 2021 at the earliest in the UK. The rest of Europe is far behind in its rollout, which will affect easyJet too. I much prefer this FTSE 100 stock.
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.