The easyJet share price could tick lower today on the back of a huge full-year loss and weak capacity. This would be a blow for the airline, as the shares had made a slow but steady recovery after hitting lows in March.
EasyJet revealed an annual loss before tax of £835m, which was in the middle of the £815-£845m loss range anticipated. Last year the firm posted a profit of £427m, with this violent swing in earnings underlining the mayhem caused by the Covid-19 health emergency. EasyJet now anticipates that capacity will be no more than 20% in the first quarter, a downgrade from its previous guidance of 25% capacity.
EasyJet share price could take a hit
Full-year revenue slipped by 52.9% to £3bn. The cash burn for the fourth quarter was £651m, and that exceeded forecasts of below £700m. The cash burn rate in the third quarter was £774m, so it is encouraging to see that easyJet is curtailing its outgoings. There are a few more lean months in the pipeline so cost management will be crucial.
The company made it very clear that it is well financed, after it raised £3.1bn in cash year to date. In addition to that, easyJet confirmed that it is ready for all outcomes with respect to the UK-EU trade situation, so that should reassure dealers.
Liquidity not a concern despite aviation sector woes
The aviation sector has been one of the worst hit by the pandemic. Last month, easyJet announced that full-year passenger numbers fell by 50% to 48m. When the group revealed its first-quarter update in late January, passenger numbers ticked up by 2.8% to 22.2m. Total revenue rose by 9.9% and the airline commented that on a strong start to the new financial year.
But easyJet, like its competitors, has endured major turbulence because of the health emergency. Flights have been cut back severely and it only expects to fly 20% of capacity in Q1. The grounding of flights is aimed at conserving cash, with demand extremely low. In the past few weeks, the company carried out sale-and-lease-back transactions on aircraft, raising £435m in the process. It is worth noting the airline had £2.3bn in cash at the end of September. Liquidity is not a worry, but that being said, it needs to see demand pick up, which does not look likely in the near term as several major European countries are in lockdown.
Recovery slow for easyJet share price
Just before the pandemic set in, the easyJet share price hit its highest level since August 2018, so investor confidence was building. Between February and March, easyJet's share price dropped by over 70%. The recovery since then has largely been slow and major uncertainty still hangs over the stock.
However, two positive announcements with respect a potential Covid-19 vaccine have helped lift the stock. The first came from Pfizer and BioNTech, and the second from Moderna yesterday – the drugs in question have an effective rate of over 90% and 94.5% respectively. Since the first vaccine story, the easyJet share price has surged in excess of 40%.
EasyJet's share price has been pushing higher recently and should it continue, it could target 955p. A pullback from here may find support at 701p, the 200-day moving average.
Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.