Since the start of the pandemic, the easyJet (LSE: EZJ) share price has seen a prolonged period of volatility. Although the share price is up 17% year-to-date (and 31% over 12 months), the last month has seen a near 11% fall. With the current dip, is now a good time to buy? Let’s take a look.
First, let’s look at the opportunities easyJet currently presents. Most noticeable is the restructuring process the business has been through during the pandemic. The last six months have seen redundancies, pay cuts, and adjustments to working hours — all to slash costs. Its cost-cut programme aims to deliver around £500m of savings in FY21 alone. Although short-term actions such as redundancies may fill investors with doubt, long-term this provides a solid opportunity for the business. This positions it for a strong bounce-back post-Covid-19 and offers potential for the easyJet share price to take off.
To add to this, as of the end of March, easyJet reported £2.9bn of cash and unused debt. As such, this provides financial stability. CEO Johan Lundgren said easyJet will not require financing unless the summer 2022 season is disrupted.
The half-year results also mentioned how it remains flexible and can ramp capacity up or down quickly, which could hugely benefit the business should restrictions continue to chop and change. With what it says is a flexibility to maximise European opportunities, should more countries eventually be added to the green list the volume of travellers could rise significantly for the remainder of 2021. This, in turn, could boost the share price.
With the above said, I am aware of the risks. The latest half-year results showed a 90% drop in revenues year-on-year, falling to £240m. This included a 91% fall in passenger revenue to £170m. This clearly provides a risk for the future easyJet share price – potentially damaging investor confidence. However, I could argue that this was expected, and therefore is not as bad as it initially seems, as my fellow Fool Manika Premsingh discussed back in May.
On top of this, regardless of easyJet’s likely ability bounce back from the impacts of the pandemic, it may take years to see volumes of travel anywhere near pre-Covid levels. Many expect the aviation industry to return to ‘normal’ only in 2024.
Another major issue is the pushing back of the ‘freedom day’ date when all restrictions will be lifted. Originally set for 21 June, it is now 19 July — but even that is not guaranteed. With new guidelines being put into place, including the UK government’s green, amber and red lists for destinations, it provides instability for the travel sector. This could negatively impact the easyJet share price.
Should I buy easyJet?
Although easyJet provides opportunities, the persistence of the pandemic continues to dampen these opportunities. With the easyJet share price currently sat at around 900p, I personally will not buy. The uncertainty around what the future holds surrounding Covid makes me wary. As such, I intend to place easyJet on my watchlist until the path out of the pandemic for travel is clearer.
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Charlie Keough does not own shares in easyJet. 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.