Is easyJet (LSE: EZJ) really “hanging by a thread,” as a union official has apparently described it? At least, that’s what BBC News, reporting on a leaked recording on Saturday, claimed union rep and pilot Martin Entwisle said. Surprisingly, the easyJet share price reacted by opening up a few percent Monday morning. Maybe things are so bad, investors just can’t see them getting any worse?
Entwisle’s words, following a meeting with easyJet’s chief financial officer Andrew Findlay, were aimed at persuading easyJet pilots to accept a deal to save jobs. So there might be a little creative interpretation there. And the airline stresses his assessment, which also describes easyJet’s situation as “dire,” doesn’t reflect anything the company itself has said.
But it does remind me of one of the great investors who inspired Warren Buffett.
Scuttlebutt
In 1958, Philip Fisher wrote a book ‘Common Stocks and Uncommon Profits’. Championing the “scuttlebutt” technique, which is all about informal information, he wrote: “Rumours, what’s being said on the grapevine, what people think about a company and its products and services… The more you can gather of that, the better an investor you will be.”
What does it mean for the easyJet share price? Well, for starters, I think something like Entwisle’s union talk can be more valuable than official company statements. And it’s what’s happening on the ground that counts, not a firm’s own words, which always put the best slant on things.
Customer satisfaction is all part of the scuttlebutt approach. And, on that score, easyJet scores highly. But right now, people are simply not flying. And we have no real-world way to estimate when they’ll start again.
Thomas Cook
The easyJet share price has crashed massively. So did Thomas Cook’s. And Thomas Cook’s official company statements were all about the positive. They detailed the recovery package and its financial details. There was enough information even for existing investors to get an idea of how badly diluted they’d be.
I was talking with some people about Thomas Cook on the final weekend of its existence. Yes, it could have been a profitable recovery investment, if the recovery deal went through. And it looked like it was about to — but it hadn’t yet. My recommendation? Wait and see what the next few days bring. By Monday it was all over.
easyJet share price
Now, I’m not expecting the easyJet share price to plunge to nothing. At least, not in the short term. But even though the airline’s liquidity position is holding up for now, it is burning through the cash.
But it needs a drastic improvement by next summer. And that, as far as I can see, needs a successful Covid-19 vaccine. The great majority of people are still uninfected. I’m no immunologist, but that suggests to me that the alternative of herd immunity would take years to achieve.
So no, none of my money will go chasing the easyJet share price. Some recovery risks are worth taking. But not airlines, not even good ones. Not in the current pandemic environment.