Key points:
- IAG and EasyJet shares should benefit from higher passenger numbers.
- However, IAG is facing more significant technical problems than its peers.
- Still, the airline industry is much better now than in January.
Earlier today, Heathrow airport released its Q1 earnings and operations report showing a healthy surge in passenger numbers since the lifting of UK travel restrictions on 18 March 2022.
The UK’s largest and busiest airport handled a whooping 9.7 million travellers in the three months as people rushed to take advantage of the lifted restrictions.
Also read: The Best Travel Stocks To Buy Right Now.
The number of airline travellers is expected to remain high so long as the travel restrictions are not reinstated as the number of COVID-19 infections remains high despite the relaxed restrictions.
International Consolidated Airlines Group (LON: IAG), which owns British Airways, is expected to benefit from the rising passenger numbers, as will low-budget carrier EasyJet Plc (LON: EZJ), but the airlines faced a new set of problems that may derail them.
The recent Easter holiday unveiled a host of problems for the large carriers who have to contend with record-high oil prices. There were many flight cancellations by British Airways during the Easter rush as driven by staff shortages and sickness. A significant portion of the airline’s staff got infected with COVID-19 and could not fly, leading to multiple cancellations.
According to the brokers at Peel Hunt, while EasyJet also had its share of flight cancellations, British Airways was the worst affected of the major airlines. As such, they saw it fit to slash their full-year profit forecasts for IAG to €495 million (£416 million) from €997 million (£839 million).
The analysts also pointed out that while IAG had hedged most of its fuel supply for the year to minimise the impact of the recent spike in fuel prices, the airline’s hedging was below that of its peers; hence, its fuel bill could be much higher.
According to the brokers, the technical hitches at IAG are unique. Hence, it risks losing customers to its rivals whose operations are much smoother with fewer cancellations and zero staff shortages.
Therefore, Easyjet might be the bigger winner if it keeps operating more smoothly than its chief rival IAG, reflecting its share price over time. Investors would watch out for IAG’s quarterly results on 6 May 2022.
Meanwhile, the operating environment for airlines remains exceptionally challenging given the rising crude oil prices and the COVID-19 restrictions in many other countries. There is also the looming threat of the reinstatement of UK restrictions if the infection rate remains high.
Still, the situation for UK airlines looks much better than it has ever been since the pandemic started, and investors will take any wins they can.
As we finish, a key highlight of the Heathrow report was that 95% of its customers passed through security within 5 minutes, which is impressive. However, some draft proposals from the CAA risk getting passengers stuck in long queues, making it difficult for the airport to keep financing its operations. Nobody wants this, and the CAA should take a hint…