Like many other airline stocks, the easyJet (LSE:EZJ) share price took an enormous hit in March 2020. Since then, it has made an impressive partial recovery, thanks this year to the relatively rapid progress of the vaccine rollout. But recently, the stock is back on the decline following its latest earnings report and a collection of unfavourable events.
Since May, it’s fallen by around 12%, which is hardly a collapse like the one seen in early 2020. However, is there cause for concern? Or is this a buying opportunity for my portfolio?
The falling easyJet share price
Since the last time I looked at this business, it has released its half-year earnings for FY21. And they weren’t a pleasant sight for sure. Compared to a year before, total revenue fell by 90% from £2,382m to £240m, due to passenger numbers plummeting from 38.6m travellers to 4.1m. Total aircraft capacity fell to 6.4%, pushing the cost per seat from £59.75 to £145. That’s well above the average revenue generated per seat of £36.93.
These results are undoubtedly terrible, so seeing the easyJet share price suffer after publication isn’t surprising. It also doesn’t help that lockdown restrictions in the UK have been extended by four weeks, with Portugal being moved to the amber list.
To make matters worse, the International Air Transport Association (IATA) estimates that the volume of aircraft passengers in Western Europe won’t return to pre-pandemic levels until 2023. If accurate, this will prove problematic for easyJet and other airline businesses, given their operational costs are predominantly fixed.
This certainly paints a bleak picture for the easyJet share price. But the situation may not be as dire as it seems.
The signs of recovery are there
As horrendous as the half-year results were, they were hardly unsurprising. After all, these figures represent the performance between October 2020 to March 2021 – a period when travel and lockdown restrictions were still in full force.
Looking at management’s guidance, EZJ expected travel capacity to return to 15% by June, within Q3. This level is also expected to climb higher thereafter. That’s still relatively low, so the average cost per seat will remain high. But it’s moving in the right direction. And as these figures improve, I would expect to see the easyJet share price move in correlation.
Meanwhile, the company has successfully executed its “largest ever” structural cost-cut programme. As a result, easyJet now expects operating expenses to fall by £500m by the end of 2021. That’s quite an impressive feat in my eyes. And when compared to 2019 figures, this represents a roughly 8% increase in margins.
Combining these cost savings with its £2.34bn cash balance, easyJet looks like it’s in a relatively healthy position compared to some of its competitors.
The bottom line
Over the long term, I think easyJet and its share price can return to pre-pandemic levels. And it seems most investors agree with me, given the stock didn’t completely collapse following the latest earnings report.
However, I believe there are far better growth opportunities with much less risk to be found elsewhere. So I won’t be adding any shares to my portfolio today.
Zaven Boyrazian has no position in any of the shares mentioned. 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.