- IAG is up near 10% this morning on the fading of omicron fears
- Wizz Air is also up the same amount for the same reason
- Easyjet slightly lags the sector with only an 8% rise
International Consolidated Airlines Group SA (LON: IAG), the owner of British Airways and Iberia, is up near 10% this morning on the fade in worries over the omicron variant. Wizz Air Holdings PLC (LON: WIZZ) is up the same amount. Easyjet PLC (LON: EZY) slightly lags the sector with an 8% rise.
The reason is likely the fade in those worries about the omicron variant of covid.Â
Clearly, the airlines have been horribly affected by the series of lockdowns. If people can’t travel then there can be no revenue for an airline. However, things have actually been worse than that in some respects. For example, within the EU it has been necessary to continue to run some flights just to retain landing slots – those are the EU rules. Which means the costs of flying but none of the revenue associated with it.
It’s also true that there have been, to varying degrees, shareholder dilutions as emergency capital has been raised. Some airlines have gone bust during the period as well – the hyper-aggressive expansion plans of Norwegian have been entirely put on hold for example.Â
Logically we should expect a bounce in airline share prices as the restrictions fade. There was that worry that omicron would be worse than previous waves given the infectivity. But the effects of an infection seem to be much lower, so covid might be moving toward the end game. Which is that it is endemic, like ‘flu or a cold, and becomes just part of the general background to life, like ‘flu or a cold. We might even note that a certain portion of colds are in fact coronaviruses which have gone through this transformation.
So, if we’ve got this welcome news that covid is becoming just that endemic background noise then airlines should benefit.Â
Which is true. But there’s more to it than just a bounceback from their beaten down share prices.
Some of the competition did go bust. So there’s that, as we all start flying again there will be fewer suppliers. That means either higher load rates or higher prices being paid to those remnant suppliers. Higher seat revenues feed directly through to the profit line of course.
But there’s more too. Certain of the legacy airlines took government bailouts to get them through these recent bad times. These came with strings attached. The loans will have to be paid back before any expansion plans can be put into action for example. So much of even the potential competition out there is hamstrung. Higher seat prices could last for significant periods of time.
There is also the obvious downside possibility which is that we don’t all go out flying like we used to. That rather depends upon what governments do about testing and vaccine passports and so on. If we remain with four-hour airports travails then perhaps we won’t be willing to travel. Â
That there’s a bounce in airline stocks on the news of the weakness of omicron is obvious. What matters is what happens next. Are they about to enjoy rising fares and loads with little competition? Or have travel habits permanently changed?
Is Now a Good Time to Invest In Travel Stocks?
Travel stocks, including IAG and EasyJet shares, have been severely impacted by the coronavirus pandemic and subsequent travel restrictions. Hotels, airlines, cruises, and car rental companies have all been affected, but could now be a good time to buy travel stocks at a discount? Are IAG and EasyJet shares included on our list of the best travel stocks to buy? Here's what our analyst had to say on the issue…