Budget airline easyJet (LSE: EZJ) just put out a year-end trading update. It’s as gloomy as we expected, but I think there are some brighter signs — though admittedly, not many and perhaps not all that bright. The easyJet share price is now down 64% in 2020. And that will present a dilemma for those who like to invest in recovery prospects.
So what’s upbeat in the latest news? Well, in the fourth quarter, easyJet carried more than nine million flyers. And for the full year, the company reckons passenger numbers reached 48 million. To put that into perspective, the previous year saw easyJet carrying 96 million. That’s half the numbers, with the easyJet share price down more than a half.
The weighting of the year, ending in September, does make that look more favourable, having given the airline a first quarter at full capacity before the scary ‘Covid’ word terrified the world.
But the figure of nine million carried in the final quarter is better than I’d expected. It does, though, represent a full-year equivalent of only 36 million. And it was the September quarter, with winter still to come. For the first quarter of the new year, chief executive Johan Lundgren said that “based on current travel restrictions we expect to fly c.25% of planned capacity for Q1 2021.“
easyJet share price attractive now?
But early booking levels for summer 2021 are, apparently, in line with previous years. Folks who’ve been locked down and had no holiday escape in 2020 appear optimistic. And it obviously all depends on how much progress we make on the coronavirus vaccine front between now and spring. If the firm really can get close to normal flying by next summer, the easyJet share price could turn out to be a bargain attraction at today’s levels.
But against that, the financial situation looks horrendous. And CEO Lundgren is crying out for help, saying: “Aviation continues to face the most severe threat in its history and the UK Government urgently needs to step up with a bespoke package of measures to ensure airlines are able to support economic recovery when it comes.”
He adds that “easyJet came into this crisis in a very strong position thanks to its strong balance sheet and consistent profitability. This year will be the first time in its history that easyJet has ever made a full-year loss.”
Watch that balance sheet
At 30 September, easyJet faced net debt of £1.1bn, from £326m a year previously. The company did have cash and cash equivalents of approximately £2.3 billion. That cash figure might look comforting, but it has to be seen against easyJet’s cash burn rate. The firm is expecting Q4 cash burn of “less than” £700m, following on from £774m in Q3.
Still tempted by the easyJet share price? If business doesn’t pick up dramatically in the next six months, I can see easyJet needing a new injection of funding. And even if things look better next summer, we just have no idea how diluted existing shareholders will be then. Or what easyJet’s balance sheet and debt situation will look like.
My final reason for not buying is that easyJet is an airline. One of the best airlines, in my view. But it’s still an airline, and I still reckon that industry is potential poison.
