Why the easyJet share price slumped 11% in October

The easyJet (LSE: EZJ) share price slumped 11% in October, even though the outlook for the global aviation industry started to improve during the month. 

Recovery underway 

After 16 months of disruption, passengers have been returning to the skies over the past few weeks in greater numbers. While the industry is nowhere near the levels of activity reported in 2019, figures suggest passenger volumes have returned to around 50% of pre-pandemic levels. 

One Killer Stock For The Cybersecurity Surge

Cybersecurity is surging, with experts predicting that the cybersecurity market will reach US$366 billion by 2028more than double what it is today!

And with that kind of growth, this North American company stands to be the biggest winner.

Because their patented “self-repairing” technology is changing the cybersecurity landscape as we know it…

We think it has the potential to become the next famous tech success story. In fact, we think it could become as big… or even BIGGER than Shopify.

Click here to see how you can uncover the name of this North American stock that’s taking over Silicon Valley, one device at a time…

easyJet is also reporting growth. In a trading update published on 12 October, the company declared that the aviation industry recovery “is under way“.

However, alongside this optimistic outlook, the company also said it would report a significant loss of around £1.2bn for its financial year ending in September. This is the second year in a row the corporation’s losses have exceeded £1bn

Still, it looks as if customer demand is increasing faster than expected. easyJet is flying 70% of its 2019 schedule in the final quarter of 2021. That is up from 60% initially projected. There is high demand for travel to winter sun destinations. 

So, although easyJet’s outlook is improving, it seems as if the market remains cautious about the company’s prospects. 

easyJet share price risks

I think it is easy to understand why. In the last few days of September, easyJet completed a £1.2bn rights issue. This has helped strengthen the company’s balance sheet, but it also highlights the stresses the pandemic has placed on the group’s finances. 

Further, the rights issue has increased the overall number of shares in the company. Technically, this means each remaining share has a smaller claim on the underlying business and its profits. Therefore, each remaining share is technically worth less than it was before the cash call at the beginning of September. 

I think this is one of the reasons why the easyJet share price fell in October. Each share now has a reduced claim on the underlying business. On top of this, the company is still losing money, and it is unclear how the enterprise will move ahead after the pandemic. 

The airline industry is incredibly competitive. Unfortunately, easyJet’s costs are relatively high. This means it may struggle to offer low-cost deals on a par with peers and remain profitable. Then there are fuel costs to consider. Rising oil prices have pushed fuel costs to multi-year highs across the board. This is only going to make life harder for the group. 

As such, considering these challenges, I would not buy the stock for my portfolio. easyJet’s trading update suggests that the company’s outlook is improving, and some investors may feel comfortable owning the investment as a recovery play.

Nevertheless, the organisation’s weak balance sheet, cost pressures, and the airline industry’s uncertain outlook concern me. Unless the corporation can overcome these pressures, I think the stock could continue to fall. 

Our 5 Top Shares for the New “Green Industrial Revolution”

It was released in November 2020, and make no mistake:

It’s happening.

The UK Government’s 10-point plan for a new “Green Industrial Revolution.”

PriceWaterhouse Coopers believes this trend will cost £400billion…

…That’s just here in Britain over the next 10 years.

Worldwide, the Green Industrial Revolution could be worth TRILLIONS.

It’s why I’m urging all investors to read this special presentation carefully, and learn how you can uncover the 5 companies that we believe are poised to profit from this gargantuan trend ahead!

Access this special “Green Industrial Revolution” presentation now

Rupert Hargreaves 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.

This post was originally published on Motley Fool

Financial News

Daily News on Investing, Personal Finance, Markets, and more!