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Is now the right time to buy easyJet shares?

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An easyJet plane takes off
Image source: London Luton Airport

Over the last month, easyJet (LSE: EZJ) shares have fallen almost 20%. But even since the beginning of 2021 the stock has only delivered a modest 5% increase compared to the 30% rise during the past 12 months.

It seems that the recovery in travel-related stocks could be losing steam. It doesn’t help that the volume of Covid-19 cases relating to the Delta variant is on the rise, which has caused uncertainty.

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So is now the right time to buy easyJet shares? Well, I’m still holding off from dipping my toe in. The spread of the Delta strain is making me uneasy and I’m not yet comfortable buying the airline stock. But it’s certainly on my watch list.

The company released a trading statement yesterday, which I think is worth taking a closer look at.

Still loss-making

I’m not surprised that easyJet still made a loss for the quarter ended the 30 June. It generated a pre-tax loss of £318m, which was an 8% improvement from the same period last year. According to the company this performance is “in line with management expectations.”

Travel isn’t going to recover overnight. It just highlights that the airliners are still facing challenging times. And I personally, think this is going to continue at least for the next few months, which could place pressure on easyJet shares.

Cash burn

The firm had a total cash burn of £55m in the quarter. But it also highlighted that fixed costs plus capital expenditure during the three months were on average £34m per week. It’s important to note here that this figure came below the guidance of £40m per week given in the first quarter.

While this shows disciplined cost management, no penny-pinching will detract from the fact that operating an airline carries high costs. And if the sales aren’t coming in, this is going to chip away at liquidity.

easyJet is also carrying on with its cost-cutting. It remains on target to deliver approximately £500m of savings in its 2021 financial year. And it expects almost half of the cuts to be sustainable on an ongoing basis. So at least the company will be leaner when it comes out the other side of the pandemic.

Bright side

While easyJet is burning through a lot of money, it’s not all doom and gloom. The number of flights and passengers massively improved during the quarter. This was reflected in the sales figures. Revenue for the three months increased by 2,866% to £213m from £7m in the same period in 2020. It shows that there’s pent-up demand.

During the three months it has been flying at 17% of Q3 2019 capacity, which was slightly ahead of its expectations. It has seen strong demand in intra-European flights. What’s encouraging is that it believes that it can fly up to 60% of Q4 2019 capacity in its final quarter. Of course, this is all dependent on the status of travel restrictions.

Is now the time to buy easyJet shares?

I don’t think now is the right time to buy. Clearly the demand to travel is there but this is contingent on spread of the coronavirus and thereby what restrictions will be in place. I think there are too many unknowns yet, which could place pressure on easyJet shares. Hence, I’m not buying right now.

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Nadia Yaqub 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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