Are blue skies ahead for airline stocks?

Following the huge rally last week sparked by vaccine announcements, is it a good time to buy airline stocks? Well this weekend saw the highest number of travellers for eight months and this will only improve. The sky’s the limit. 

Positive news about vaccines has injected money straight into industries worst hit by the pandemic. Traders dumped tech stocks and replaced them with airlines, cruise companies and hospitality stocks. The recovery from the Coronavirus pandemic is happening quick in the stock markets but it’ll be a while before we go back to pre-covid levels, with some experts saying winter 2023. 

The pandemic meant revenues were slashed, planes were set aside to gather dust and debts increased for airlines. Global air travel was down 94% in April due to travel bans – this is equivalent to air travel 30 years ago. But things are looking up with the roll-out of successful vaccines in sight. Passenger numbers will be up to 76% of 2019 numbers next year if all goes well. Airline companies have already hugely benefited from the vaccine announcements. The Dow Jones US Airlines Index has risen by 23% this month with equivalents across Europe up 45%. The transition to a post-pandemic world is really taking shape!

So which airlines will do the best?

Airlines in the US have a seeming advantage compared to other companies as intra-national travel in the coming few months will bounce back fast. Delta entered 2020 in  the strongest financial position buffering loss of sales over the pandemic. DAL has seen the smallest loss of the american airlines at only $10 per share this year. Delta will likely be one of the quickest to recover so watch their price into early spring. United Airlines however,  is one many of you will be wary of as it doesn’t have the security of larger US airlines like Delta. As UAL would be a risky investment, with some analysts predicting their 2020 losses to continue into 2021, hopefully reducing the loss to $4 per share, is it a wise investment? The higher the risk, the higher the reward isn’t always true, especially when it comes to stocks and shares. Coming out worst out of the biggest US airlines is American Airlines who had to heavily dilute shareholders to keep afloat. It’s not a surprise that AAL stock is going to stay flat considering their levels of debt. They have relied on government and bank support and will be saddled with this debt of many years to come.. 

In Europe the biggest names will survive. EasyJet had a great week with a 35% boost in share price seeing it gain back most of its 2020 losses! The budget airline Wizz Air is one to watch based on their strong finances and region of travel. Brokers forecast 80% of pre-pandemic revenues for the airline by 2022 which is much higher than the industry is predicted overall. While Lufthansa has said to lose 800 million euro per month over 2020, their strong balance sheet and high liquidity funds will stand them in good stead for recovery over 2021. 

Though travel bans will likely still be in place until the vaccine has reached everyone (and at this point it is complete speculation that this will happen before your summer holidays). EasyJet have said they are going to fly just 20% of capacity for the first quarter of 2021 despite bookings increasing by 50% over the past week. 

It will take years for airlines to fully recover from the pandemic but it looks like most big airlines will survive. To keep up with the latest news follow BullBear.