The easyJet (LON:EZJ) share price could tick lower today on the back of its full year update as the capacity outlook is weak.
The annual loss before tax was £835 million, which was right in the middle of the £815-£845 million loss range. Keep in mind, last year the firm posted a profit of £427 million, so the violent swing in earnings underlines the mayhem caused by the health emergency. EasyJet now anticipates that capacity will be no more than 20% in the first quarter which is a downgrade from its previous guidance – it projected 25% capacity.
Full year revenue slipped by 52.9% to £3 billion. The cash burn for the fourth quarter was £651 million, and that exceeded forecasts because it previously stated the metric would be below £700. The cash burn rate in the third quarter was £774 million, 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 as it raised £3.1 billion 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.
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 48 million. Keep in mind the group revealed its first quarter update in late January, and passenger numbers ticked up by 2.8% to 22.2 million. Total revenue rose by 9.9% and the airline commented that the new financial year had gotten off to a strong start.
EasyJet, like its competitors, endured major turbulence because of the health emergency. Flights have been cut back severely and it expects capacity in the first quarter to only be 25%. The grounding of flights is aimed at conserving cash because demand is extremely low. In the past few weeks, the company carried out sale and lease back transactions on aircraft, and it raised £435 million in the process. It is worth noting the airline had £2.3 billion 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 lockdowns.
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, the easyJet share price dropped by over 70%. The recovery has been slow and major uncertainty still hangs over the stock.
Twice in just over one week, there have been two positive announcements with respect to a potential Covid-19 vaccine. The first came from Pfizer (NYSE:PFE) and BioNTech, and the second was from Moderna only yesterday – the drugs in question have an effective rate of over 90% and 94.5% respectively. Since the first possible vaccine story, the easyJet share price has surged in excess of 40%.
The easyJet share price has been pushing higher recently and should it continue, it might target 955p. A pullback from here might find support at 701p, the 200-day moving average.
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