The easyJet (LSE: EZJ) share price has been extremely turbulent since March. In fact, it’s hit highs of over 900p, while also falling to lows of around 450p. The last month has been extremely positive for the stock though, with the share price rising 70% to 850p. This has been spurred on by the roll out of the Pfizer/BioNTech vaccine. The success of other vaccines has provided further hope for the airline stock. Nevertheless, while this news is certainly very positive, problems still abound. These include the potential impacts of a no-deal Brexit and the travel restrictions that remain in place due to the pandemic.
What problems does the airline face?
Investors who bought easyJet shares at the start of the year would currently have lost around 44% of their investment. Considering the dramatic impacts of the pandemic, this is not at all surprising. For example, the company reported an annual loss of £1.27bn and were forced to raise capital through a share placing in June. Due to the slump in demand, it has also had to cut staff and scale back its operations.
Brexit will also affect the low-cost airline, especially if the UK crash out without a deal. Fortunately, the EU has published a contingency plan that will allow air carriers to continue flights for up to six months. Nevertheless, six months is not a long time, and in the event of a no-deal Brexit, easyJet will have to apply for and receive new flight rights. This could lead to significant disruption for the airline and may place a strain on the easyJet share price.
Can it overcome these problems?
Due to the news of the vaccine, I am more optimistic about easyJet’s future than I was a month ago. For example, there are recent reports that the company has seen a 200% increase in booking searches over the Christmas period. This demonstrates that demand is starting to return. If the vaccine can be successfully rolled out before summer 2021, I believe it could return to profitability next year. As such, it seems that there is significant upside potential with easyJet shares.
In terms of Brexit, the company also looks fairly well prepared. In fact, in July 2017, the airline established easyJet Europe to help deal with the uncertainty. Last year, the chairman stated that it was “operationally well prepared”. Such preparation means that I believe the company can overcome the problems posed by a potential no-deal Brexit.
Would I buy easyJet shares?
Considering the share dilution which took place in the summer, I cannot see the easyJet share price returning to its former levels any time soon. The fact that so many travel restrictions still remain in place also demonstrates the problems the company still faces. As such, I believe that its recent 70% rise was slightly too optimistic. This means that I’m leaving easyJet shares on the shelf for now. Saying this, after the impacts of both Brexit and the vaccine can be fully considered, I may reconsider my position.
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Stuart Blair owns shares in Pfizer. 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.
Motley Fool UK 2020