Why the Webjet (ASX:WEB) share price is down 45% in 2020

Here's why the Webjet Limited (ASX:WEB) share price has crashed lower in 2020…

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The Webjet Limited (ASX: WEB) share price has had an incredibly volatile year.

On Wednesday the online travel agent's shares are changing hands for $5.24, which means they are down 45% since the start of the year.

However, this is a big improvement from the Webjet share price's April low of just $2.25.

travel asx share price represented by suitcase wearing covid mask

Image source: Getty Images

Why is the Webjet share price down 45% in 2020?

Investors were selling off Webjet and fellow travel shares such as Flight Centre Travel Group Ltd (ASX: FLT) and Qantas Airways Limited (ASX: QAN) earlier this year after the COVID-19 pandemic brought the global travel industry to a standstill.

With booking volumes dropping to previously unthinkable levels, Webjet and its peers were suddenly left with next to no income and significant costs to pay.

This led to Webjet having to raise funds to boost its balance sheet and help it navigate the crisis.

The company raised $346 million from institutional and retail investors through the issue of ~203.5 million shares at a price of $1.70 per new share. This was a sizeable 55% discount to its last close price at the time and highly dilutive to existing shareholders.

How is Webjet performing now?

With the Webjet share price more than doubling since hitting its April low, investors may have guessed that trading conditions are starting to improve.

According to Webjet's most recent update, its Webjet OTA business recorded monthly bookings of 18,700 during September. While this is down from its pre-COVID average of 131,300 per month, this recovery is stronger than the market average.

Management advised that Webjet OTA's bookings are 14.2% of pre-COVID levels, which compares favourably to a 7.1% recovery by the rest of the market. This side of the business will reach break-even when levels hit 23% of 2019's levels.

The key WebBeds business is also improving, though it remains a long way from becoming breakeven. As of 7 October, its average total transaction value (TTV) stood at 12% of calendar year 2019 levels. Management advised that it needs to surpass 45% of 2019's levels to become profitable again.

But with vaccines being approved and rolled out across the world, there are hopes that travel markets could return to some form of normality mid to late next year and booking volumes could improve enough for Webjet to become profitable again.

This appears to have got investors excited and supported its share price over the last few months.

What happens in 2021, only time will tell. But one thing that is for sure, is that Webjet will be a company to watch closely.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Webjet Ltd. The Motley Fool Australia has recommended Flight Centre Travel Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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