Airline stocks soar but still long way to go
For all the optimism about travel restarting as vaccines are rolled out, airline stocks still have a way to go to make up the ground they lost in the Covid19 pandemic.
It may take signs of a recovery in long-haul flights for the sector to make further gains.
The Bloomberg World Airlines Index soared 15 per cent last month but is 17 per cent below its 2020 peak, set in January before the outbreak hit the world with full force.
Leisure travel looks set to rebound sharply in the coming months, if bookings are any guide, though a revival of business trips and intercontinental flights seems a bit further off.
“Globally, countries still need to reopen their borders, as well as tourist attractions and the like before people travel internationally,” said Helane Becker, an analyst at Cowen Inc.
Among European airlines, the big winners have been Ryanair Holdings Plc, the Irish low-cost carrier, and Wizz Air Holdings Plc, the Eastern European company that’s modelled itself after Ryanair. They have benefited from a focus on vacationers rather than business clients.
British Airways parent IAG SA on Friday posted its first annual loss in almost 10 years, but said there is reason for optimism about this summer.
“As travel restrictions in the UK and elsewhere ease, we believe demand will recover quickest at Ryanair, Wizz Air and other lowcost carriers,” Rob Barnett and Conroy Gaynor of Bloomberg Intelligence wrote in a report.
“A slower pace is likely at fullservice airlines such as IAG, as the rebound in long-haul travel may not be as quick.”
Analysts are sceptical about the recovery. Among major European airlines, brokerages see only two providing investors with a positive share-price performance over the next year. For Deutsche Lufthansa AG and Air FranceKLM, the average analyst price
target implies declines of more than 40 per cent.
In Asia, a Bloomberg Intelligence index of Asian carriers has surged 5.4 per cent last week, beating the region’s benchmark by the most in more than a decade.
The index recouped all the losses from the previous month, when a resurgence of infections in Asia rattled travel-related stocks. The sector is at the highest since January last year.
“I think the vaccine news has been priced in,” said Luya You, an analyst at Bocom International in Hong Kong.
If the vaccine is widely accepted, she said, the next thing to watch is whether Asian countries use so-called vaccine passports to exempt travellers from quarantines or have shorter quarantine time.
“This will be a huge catalyst for the sector,” she said.
You has “buy” ratings on companies in China, where the virus largely has been contained, including China Southern Airlines Co, Air China Ltd and China Eastern Airlines Corp.
In the US, airline shares have soared since August amid the growing optimism about vaccines.
The biggest gainers include Hawaiian Holdings Inc, Alaska Air Group In, SkyWest Inc, JetBlue Airways Corp and Delta Air Lines Inc.
However, investor enthusiasm may be getting ahead of itself as Wall Street analysts strike a far more cautious note.
While an S&P index of airline stocks is now only down about 14 per cent since the beginning of 2020, the average 2021 earnings estimate for the carriers has stayed around the same level since May, after dropping precipitously in early March last year.