The countries of the European Union appear ready in the coming weeks to welcome vaccinated travelers from an increasing number of countries. Meanwhile, the UK is currently following the color-coded travel system (i.e. red, orange and green). UK residents have already started visiting Green List countries including Portugal, Iceland and Gibraltar within Europe. Airlines hope the green list will grow quickly.
There has also been a significant increase in the number of air travelers in the US. The U.S. Transportation Security Administration (TSA) releases daily passenger numbers.
On Wednesday, May 26, the throughput of travelers was 1,618,169. By comparison, 52 weeks ago on Wednesday, that was 261,170. And in 2019 that was 2,269,035. Four weeks ago, on Wednesday April 28, the throughput was 1,184,326.
The number of air travelers is still considerably lower than before the pandemic. Still, there has been a steady increase in the number of people boarding a plane. As a result of the improving sentiment among consumers and investors, shares of travel and leisure companies, especially airlines, are receiving a lot of attention
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Year-to-date, the and indices are up about 5.7% and 30.9%, respectively. Likewise, since the beginning of the year, shares of American Airlines (NASDAQ :), Delta Air Lines (NYSE 🙂 and United Airlines (NASDAQ 🙂 have more than 51.2%, 18.2% and 34.1%, respectively.
The UK also trades many shares in airlines. Today we take a look at the Member EasyJet (LON 🙂 (OTC :). Over the past 52 weeks, EZJ stock is up 76%, while YTD returns were around 18%.
On May 27, the stock closed at 997.8p ($ 14.43 for the US stock). Market capitalization is £ 4.6 billion (or $ 6.5 billion).
A Point-to-Point Budget Airline
As of September 2019, the Luton-based EasyJet was the seventh largest airline in the world. Founded in 1995, the group now operates domestic and international scheduled services in the UK on more than 1,000 routes in 35 countries.
The member airlines include EasyJet UK, EasyJet Switzerland and EasyJet Europe. Together they cover more than 150 airports. The workforce is approximately 14,000 people, including more than 4,000 pilots and 8,000 cabin crew members.
On May 20 announced its EasyJet. Sales fell 90% year over year (year over year) to £ 240 million (or $ 340.4 million). Low-cost airlines such as EasyJet depend on passenger income and additional income (such as seat selection, extra baggage, or sale of food and drinks on board). Understandably, additional income will depend on the number of passengers.
In the case of EasyJet, first half passenger revenues were £ 179 million ($ 253.9 million), down 91% year-on-year. Likewise, side income fell 87% to £ 70 million ($ 99.3 million).
The loss of £ 701 million (or $ 994.2 million) was in line with expectations. A year ago, the loss had been £ 193 million ($ 273.7 million).
In March, the airline had approximately £ 2.9 billion (or $ 4.1 billion) in liquidity. Since the start of the pandemic, management has worked to reduce costs and the cash burn rate – averaging about £ 38 million a week (or $ 53.9 million).
CEO Johan Lundgren said:
" With leisure travel starting again earlier this week in the UK, where we are the largest operator of Green List countries … We know there is pent-up demand – we saw this again when the Green List countries were released and added more than 105,000 seats. "
In the third quarter, the airline expects to operate approximately 15% of its 2019 capacity levels. From June, management hopes that the capacity will increase. However, investors were not satisfied with the muted outlook.
Bottom Line
In February 2020, before the pandemic reached Europe, EZJ's share fluctuated around 1,500 pence. Given that EasyJet's shares are already up 18% in 2021, we don't think there could be much upside in the coming weeks for an airline projected to fly at around 15% of 2019 capacity levels.
Meanwhile, new variants of the coronavirus could easily mean new restrictions in Europe, leading to a decrease in air travel. We believe that EZJ shares would offer better value at around 950p, or even lower. So we wouldn't invest in the shares for now.
Finally, investors who are interested in EasyJet shares but don't want to allocate capital to one company may want to consider buying an exchange-traded fund (ETF) that owns the shares. Examples include:
Invesco FTSE RAFI Developed Markets ex-US ETF (NYSE 🙂 – Up 16.3% YTD;
iShares MSCI United Kingdom Small-Cap ETF (NYSE 🙂 – Up 17.2% YTD;
US Global Jets ETF (NYSE 🙂 – 20.4% up YTD.
