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Why the easyJet share price fell 20% in 2021

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An easyJet plane takes off
An easyJet plane takes off

It has not been an easy time to be an airline – but easyJet (LSE: EZJ) seemed to have a particularly difficult 2021. The share price fell 20% in the year, after having fallen 40% in 2020.

Below I look at why.

Tough times for airlines

The basic reasons for the underwhelming performance are not difficult to understand. The pandemic has continued to hurt demand for air travel. Much business travel has been scrapped as people switch to online meetings. Meanwhile, leisure travel demand has been plagued by ongoing uncertainty about changes in travel restrictions.

The number of seats available on the company’s flights fell by 49% compared to the previous year (much of which was also affected by the pandemic). Despite that, flights were only 73% full compared to 87% in the prior year.

Some airlines benefited from pandemic-related revenue streams. For example, many long-haul airlines sought to increase their cargo operations. But with easyJet’s focus on short- and medium-haul passenger traffic, it did not have the same opportunities. So a fall in passenger numbers left a big dent in both revenues and profits.

easyJet challenges

But weak demand was not the only reason the share price fell in 2021. Investors became increasingly concerned about the company’s strategy. A takeover bid, reported to be from rival Wizz Air, looked opportunistic. But I think it underlined the sense of weakness rather than strength at easyJet. The airline launched a £1.2bn rights issue last Autumn. While that boosted liquidity, it also raised questions about whether the airline had a future as an independent company.

I think easyJet could well overcome its current difficulties. The rights issue boosted liquidity. On top of that, the airline went into the pandemic in a strong position. That means it has felt less financial pressure than some rivals. It has slashed costs, going through its cost base “line by line” to see what it could eliminate. easyJet is also redirecting its fleet to where it thinks it can do best, for example ramping up capacity ahead of an expected Summer travel boom. Indeed, it talks of a “radical reallocation of our aircraft to higher contributing bases”.

easyJet is not alone among UK airlines to face such challenges. But unlike, say, IAG-owned British Airways, it does not have a long-haul network. So it could not profit to the same extent from a faster return of demand in the US aviation market than was seen in Europe.

Ongoing risks

2021 showed that to a large extent, demand is outside its control. It can use marketing to improve demand and reallocate its fleet to the most profitable routes. But a lot of customers have continued avoiding flying abroad while they remain nervous about fast-changing and potentially costly travel restrictions.

Last year saw a pre-tax loss of £1.1bn, while the company reported £4.4bn of liquidity at its year-end. The company is hopeful that 2022 will see higher customer demand than 2021, which is why it has reshaped its capacity and even leased extra planes for the peak Summer season.

The post Why the easyJet share price fell 20% in 2021 appeared first on The Motley Fool UK.

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Christopher Ruane has no position in any of the shares mentioned. 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 2022

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