A trade being talked about in The City is the idea that Omicron isn’t just another round in a never-ending succession of variants. Rather, this is the beginning of the end. At which point the airlines begin to look very attractive indeed. Either as investments in themselves or as a way of trading the reopening of society.
The three shares under discussion here are Ryanair Holdings PLC (LON: RYA), IAG, or International Consolidated Airlines (LON: IAG) who own BA and Jet2 PLC (LON: JET2). Logically the idea can be expanded to EasyJet PLC (LON: EZJ) and others as well.
Clearly, the airlines such as Ryanair, BA and Jet2 have suffered badly as a result of lockdowns and bans on international travel. Some airlines like Norwegian have crashed and burned over the period although covid wasn’t the entire cause there.
It’s also obvious that the spread of omicron is having an effect again and the airline shares are all depressed as a result. As ever though with investment it is what happens next that matters, that prediction of the future.
One view could be that after omicron comes another variant, which then spreads and the airlines suffer again. And then that passes and there’s another off into a long-term decline of the entire sector. Even the most well capitalised airline cannot last forever if international travel continues to be restricted.
There is also the possibility that omicron is pretty much the end of it. Viruses – virii perhaps – do tend to become less dangerous and more infective as time goes on. The evolution path is well known. This is, after all, how the common cold and influenza started, things that killed at first and then became less dangerous and easier to catch over time. Indeed, some colds are coronaviruses.
A covid variant that is astonishingly easy to catch yet doesn’t cause much damage ends up being the, well, end of the panic. For everyone will get it, near all will survive and then we’re all protected – a bit or a lot – from any further variants. At which point the bans on travel disappear.
The bet then becomes that we all return to our former habits of flying. If we’re all allowed to that’s probably a good bet too. Thus air traffic and airline revenues and profits will boom.
Airline shares like Ryanair, Jet2 and IAG thus become ways to trade on opinions about omicron. If this is the last burst, the last gasp, of covid lockdowns and restrictions then airlines are cheap at today’s prices. If omicron is just another round and there are more to come then perhaps they are not cheap, those airlines. Taking a view on those possibilities is the trade.
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Tim Worstall is a freelance writer specialising in economics and the financial markets.