Omicron sparks buying opportunity in airlines

The new Covid wave has created an attractive buying opportunity in airline stocks, according to experts.

This week a surge in omicron cases prompted the airline industry’s largest operators to call for further government support, with Ryanair and British Airways’s owner, International Airlines Group ( IAG), asking for the reintroduction of furlough packages.

But City analysts suggested investors should buy stocks while their share prices hover close to multi-year lows. Almost all analysts who cover London’s airlines rate them as a “buy”, with only one “sell” rating for IAG, according to TipRanks, a research website. Ed Legget, who manages the £ 1.4bn Artemis UK Select fund, holds IAG, Ryanair and Jet2. Their shares have fallen 20pc, 15pc and 23pc respectively in the past four weeks.

But Mr Legget said he was confident in the long-term outlook for travel and has taken recent share price weakness in Jet2 as an opportunity to top up the fund’s holding in the airline and holiday package provider.

“We don’t know how bad this omicron wave is going to be but we know we will get to the other side,” he said. “Airlines burn cash when they are grounded, but for the majority of these companies January and February are not profitable anyway.”

Mr Legget added that if Britain followed similar patterns to America and China, travel would revert to old habits very quickly as consumers rescheduled trips.

“When we can travel without restriction again in Britain, there will be 10 to 15pc fewer aeroplanes. The

airlines with the ability to get through this should emerge in a stronger place,” he added. “We remain optimistic that in time IAG, Ryanair and Jet2 will generate more profit than they have in the past.”

Eric Burns, chief analyst at the £1.6bn Sanford DeLand UK Buffettology fund, favoured Jet2 over pure-play airlines. “It is dominant in secondary and tertiary airports around Britain,” he said. “Rather than compete in the crowded London airports, Jet2 has built a niche flying from airports that have been underserved by other holiday businesses. This gives it a bit of a moat and pricing power.”

Analysts at the broker Jefferies highlighted Jet2 as their “best pick” in the sector, describing it as the “market share winner”.

Becky Lane, of the broker, said the winter of 2021 would be a difficult period for the company, but said the outlook was optimistic.

“We see package holiday spend as a ring-fenced component of disposable income, with material pent- up demand,” she said. “We are positive for summer 2022.”

Airlines will see a rise in demand in the new year