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Can EazyJet survive another lost summer?

The travel industry has been decimated by the coronavirus and earlier this year I wrote about how the Spring bookings were the key for short-haul flight operator's survival this year. The companies were hoping for an all-clear UK in June 2021 but that has now been pushed to July and there is no current sign that the new variants will be showing a decline any time soon.

Easy Jet Weekly Investment Idea

There are less than 4 weeks to go before the schools are all out for the summer holidays. Doesn’t seem that long ago that schools re-opened allowing parents to get back to work, but those holidays are for the teachers as much as the children and it’s not like they haven’t all been working as hard as they can, maybe harder than usual.

With the vaccinations were supposed to come returning liberties, and normalization of people's lives. Unfortunately, the variants of COVID-19 are starting to cause some serious disruptions, and more is needed to be done to curtail the exponential rate of infections.

We’re up to Delta, in the Greek alphabet for the most known and widely found variants and they are starting to sound like an Options trader’s pit, with Alpha and Beta being first detected in the UK and Gamma originating from Brazil. The current disruptor is Delta, which was first detected in India. Each variant has several mutations, and all were detected in December 2020, so have been known to the authorities for a whole 6 months now.

Although the mutations and variants go all the way through to Zeta the current vaccines seem to be doing a good job of immunizing those that have been double VAX’D. The 14-day COVID-19 death rate for the EU/EEA based on data collected by ECDC from official national sources for 30 countries, was 14.4 (country range: 0.0–78.3) per million population. The rate has been decreasing for eight weeks.

Among the 15 countries with high 14-day COVID-19 death rates (at least 10 per million), an increase was observed in one country (Slovenia). Stable or decreasing trends in death rates of 1–10 weeks’ duration were observed in 14 countries (Bulgaria, Croatia, Cyprus, Czechia, France, Germany, Greece, Italy, Latvia, Liechtenstein, Lithuania, Poland, Romania, and Slovakia).

The UK though, they are one of 7 countries that are reporting an increase in notification rates compared to the prior week’s observations and this is going to cause problems for those travelers wishing to get away this summer.

The UK has started to announce which countries citizens are welcome to visit the UK should they be fully vaccinated and some holiday destination favorites like the Balearic Islands, Madeira, and Malta were added to a ‘Green’ safe list for the UK travelers to visit.

Unfortunately for the UK travelers though, there is an increasingly negative attitude towards the UK from visiting other places. If a country does allow a UK citizen to travel into it, the common protocol is that the traveler must quarantine for up to 14 days upon the arrival. This will be the worst holiday ever, should you only have 10-14 days of annual vacation to use up. This type of restriction is going to cause a lot of cancellations or postponements.

Travel companies like TUI have been trading in a relatively tight sideways range and following the tighter restrictions over Christmas, they have been able to stem the negative outflow of investment. With the summer holidays looking ever so more likely to be ruined by Covid for a second year, travel companies, airlines, the service industry, and tourism are likely to take hits so hard there may not be an industry left.

TUI had been declining in share price from 2018’s highs of 1783.00 and is now trading around 391.00. In 2018, Thomas Cook shares were plunging due to profit warnings. Brexit had taken its toll on the travel industry, and it has been a downhill trend since eco-friendliness took more of a center stage and airline travel was seen as a big cause of carbon pollution and therefore bad for the environment.

Low-cost airlines such as EasyJet have been oscillating lower since 2015, having been able to claw their way back to near all-time highs following the UK referendum to leave the European Union, only to suffer from the 2018-2019 uncertainties for the travel industry, before being gutted by the coronavirus disruptions.

It makes sense that sovereign countries wish to stop the transmission of the COVID-19 variants and reports of Germany’s Angela Merkel trying to get a consensus vote on quarantining travelers is an understandable position. No leader wishes to be accused of allowing further disease to spread through a population, the question is at what point do we accept that we have COVID in our lives forevermore and allow the current healthy to go about their business and for businesses to stay in business?

When you think EasyJet, the color orange and short-haul flights into Europe spring to mind.

The current destination map on their website is dominated by a sea of restricted countries with only Iceland, Albania, Montenegro, and Hungary allowing visitors to arrive without restriction.

Clearly, the travel industry is in distress and the political will seems less inclined to bail out the airlines as they did with the banks during the great financial crisis in 2008-2009. There doesn’t seem to be any inclination to create a nationalized airline or travel company. Instead, the government is going to put their efforts into schemes like furlough and vaccinations. The problem is the longer planes remain grounded the more airline pilots and crew are forced to change careers. From personal experience, I had a plumber come and fix a sink a few weeks ago who had left the travel industry 9 months prior to the first lockdown. Soon, there won’t be any employees ready to fly the planes or look after the travelers. Obviously, the knock-on effect moves into the manufacturing of the airlines as well, with lead times being several years and orders having to be made and canceled for new planes as companies try and work out if or how they will be in business if these restrictions persist.

EasyJet has had to take on more debt, ask shareholders for cash and they have sold off some airplanes, just to survive this long. They are also having to negotiate with aircraft manufacturers like Airbus for flexible, deformable, delivery schedules for new airplanes. The airline said the delivery of 22 aircraft will be deferred from 2022-2024 to 2027-2028. The delivery negotiations will result in easyJet taking no deliveries in 2021, eight in 2022, seven in 2023, and 18 in 2024.

While there are no solutions and just fires to be put out and plates to juggle, EasyJet does not look like a good investment in the near term. June’s price action has made a lower high and a lower monthly low and after a few months of prior consolidation, it now looks ready to test the 2020 lows again.

On a daily chart for EasyJet, the price action has been in what looks most likely to have been a distribution range and we have broken below the support levels. We are also now clearly below the rising trend line from the October 2020 lows, and this swing low would be my initial profit target.

The support levels which may stop a waterfalling price action come from the daily 200-period exponential moving average and the end of 2020 balance area.

But unless there is a fundamental change in the way things are going with regards to COVID-19, restrictions, vaccinations, and travel, this larger move to the downside is more likely. The closer we get to the summer holidays and people realizing they can’t 1. Afford to spend 14 days in quarantine in a foreign land or 2. Can’t risk booking something to have it all be canceled last minute. The closer we are to seeing a collapse in the price of Easy Jet (EZJ) TUI and British Airways parent company IAG.

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