Airline shares tumble as doubts over summer travel grow

Carriers will need to raise more cash if summer is a write-off, warn analysts

Airline stocks had rallied strongly this year as investors bet the sector would be one of the biggest beneficiaries of the reopening of major economies.

Airline stocks had rallied strongly this year as investors bet the sector would be one of the biggest beneficiaries of the reopening of major economies.

 

Budget carrier Ryanair finished the day down 2.9 per cent on Monday as shares in airlines and other travel companies tumbled due to rising coronavirus cases in Europe and fresh doubts over the summer holiday season.

Holiday airline Jet2 fell 7 per cent and easyJet dropped 5 per cent, while Aer Lingus and British Airways owner IAG slipped 4 per cent by mid-morning in London trade after recovering from steeper losses at the open.

The falls followed warnings from the UK government that a new wave of cases and lockdowns across large parts of continental Europe mean it is too early to book summer holidays, threatening a key source of revenue for the region’s battered carriers.

Social care minister Helen Whately on Monday said she would advise people not to book summer holidays yet, because of the situation in Europe and the risk of new variants of Covid-19.

“I would say to people, just hold off,” she told the BBC.

Variants

Whateley’s comments came after Mike Tildesley, a member of the government’s Scientific Pandemic Influenza Group on Modelling, told the BBC over the weekend that international travel was unlikely this summer for the “average holiday-maker” because of the risk of introducing new coronavirus variants to the UK.

“Paris lockdown, Italy’s national restrictions and rising concern in Germany over infection rates. . . are being reflected in growing fears that a second summer of travel will be lost,” said Mark Wallace, an airlines analyst at Goodbody.

Carriers have reported surging bookings, albeit off a very low base, since the UK government set out a road map to reopening travel by mid-May at the earliest.

But that timeframe is now in doubt, and while airlines have built up a wall of cash to see them through the crisis, analysts expect more big European carriers will need new cash if this summer is a write-off.

“The next few weeks will determine when travel can hope to resume safely,” said Daniel Roeska, an airlines analyst at Bernstein.

“We would argue that we will see a steady improvement throughout the year. While there can be individual weeks of increased demand, we would caution expectations against being too exuberant for summer,” he said.

Bet

Airline stocks had rallied strongly this year as investors bet the sector would be one of the biggest beneficiaries of the reopening of major economies.

Some companies have taken advantage of the investor enthusiasm to beef up their finances against a delay in borders reopening.

IAG raised €1.2 billion in a bond issue last week, which it said would help it survive a prolonged downturn in travel.

Moves in the bond market were more measured than equities. The yield on IAG’s €500million bond set to mature in 2023 rose from 2.1 to 2.3 per cent on Monday morning. – Copyright The Financial Times Limited 2021