THE STRAITS TIMES – The easing of United States (US) and United Kingdom (UK) travel restrictions is breathing new life into European airline stocks.
British Airways owner IAG SA has been the star of the show in the last two weeks, soaring 21 per cent after the White House said America would open up to vaccinated foreigners and the UK relaxed coronavirus testing requirements for fully jabbed arrivals.
Air France-KLM and Deutsche Lufthansa AG have also rallied strongly, as have budget carriers such as Ryanair Holdings Plc.
But investors are divided on whether the gains can last and the industry has been a laggard for a long time.
European airlines remain about 25 per cent below pre-pandemic levels, underperforming sectors like industrials and retail, which are up as much as 30 per cent from where they were back then. The catalyst of air-travel re-opening could be just what they need for a more sustained revival, though the possibility of fresh restrictions is a constant risk.
Investors should look “very seriously” at so-called re-opening sectors like travel, said head of UK equities at Lazard Asset Management Alan Custis. “The opportunities now, one would argue are much, much better, perversely, than they would have been probably if the pandemic hadn’t happened.”
That’s because excess capacity in aircraft, hotel rooms and restaurants has been eliminated, Custis said in an interview. “There’s been a sea change.”
A similarly positive stance is held by Mamta Valechha, an analyst at Quilter Cheviot, which manages about GBP25 billion. “We do continue to see value in the travel sector, particularly airlines which have been hit the hardest and are still way off their 2020 peaks.”
Positive news is starting to gather pace. The relaxation of US rules led to a surge in bookings from Europe to the US Air France-KLM reported a spike in Christmas bookings, while Lufthansa was upgraded at Goldman Sachs.
And while analysts have been slow to raise estimates for airlines, consensus is on an upward slope. Data compiled by Bloomberg suggests the sector could be profitable again within about a year.