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Is the easyJet share price about to soar?

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An easyJet plane takes off
Image source: London Luton Airport

The easyJet (LSE: EZJ) share price has been gradually recovering its mojo in 2021. Having spent a lot of the previous year circling around the 500p level, it’s now cruising around 900p a pop. Will July 19 — the day Covid restrictions are finally set to end in England — be the catalyst for the stock to really fly?

easyJet share price: ready to fly?

There are certainly arguments for thinking the recent positive momentum in the easyJet share price will continue. After being confined to their homes for so long, I don’t think anyone can deny that demand for foreign travel and holidays from families and budget travellers is there. 

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There’s also a sense that UK investors think the worst is over. Interestingly, easyJet shares were the fourth most popular buy on share-dealing platform Hargreaves Lansdown last week. The fact that industry peer International Consolidated Airlines and jet engine-maker Rolls Royce also featured is another bullish indicator (although both featured on the list of most popular sells too).  

Even so, I don’t think it’s a screaming buy. Naturally, the FTSE 250 stock’s balance sheet isn’t quite what it used to be with the company now carrying a significant amount of debt. In addition to this, easyJet will still face significant competition for passengers in what remains a cutthroat industry.

There are other, more general risks to consider. A big rise in the number of infections from the Delta variant could slow short-term demand for travel even when restrictions are lifted. Indeed, the World Health Organisation has already warned other countries not to lift Covid-19 restrictions too quickly. A higher oil price isn’t great news for airlines either.

An even stronger company?

My caution over easyJet could also be applied to package holiday firm and airline Jet2 (LSE: JET2).

Like easyJet, restrictions on travel meant Jet2’s planes were out of the sky for over half the year. Even when permitted, a “significantly reduced” number of flights took to the skies. Passenger numbers fell by 91% to 1.32 million, forcing the company to report a pre-tax and foreign exchange revaluation loss of just under £374m today.

Thankfully, this looks like being a temporary blip. Bookings for next summer have been “encouraging” and a “materially higher” proportion of these are for (higher-margin) package holidays, the company said. 

Jet2 believes it will “emerge from this crisis an even stronger company”. Is it a better buy though? I’m on the fence. Its finances look decent. Having slashed costs and propped up its balance sheet via loans, the firm has just over £1.9bn in cash. On the flip side, easyJet’s status as one of the largest airlines in the (pre-pandemic) world arguably gives it more clout. Its brand is likely to be far more familiar to travellers as well.

Cautious buy

I think there’s a good chance the easyJet share price will be higher in 2022. The same goes for Jet2. As such, I think both could be cautious buys for my portfolio. That said, I would always check that I’m sufficiently diversified elsewhere first. I’d also need to be willing to hold if things don’t go to plan. As Jet2 commented today, it still has limited visibility on performance in the current financial year.

Notwithstanding this, I think I’ve found an even better opportunity for myself elsewhere in the travel space. 

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Paul Summers 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.

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