European tourism and airline shares jump as fears lessen over Omicron

European tourism and airline stocks rose sharply on Tuesday, as investors bet that the Omicron coronavirus variant will cause less disruption to travel than first feared.

Shares in Aer Lingus and British Airways owner IAG, EasyJet and Wizz Air gained 10 per cent in morning trading in London, while German tour operator Tui rose 9 per cent.

Other European airlines shares including Ryanair, Lufthansa and Air France rose about 5 per cent, adding to gains on Monday when the London market was closed.

Shares

Airline and tourism shares have been particularly sensitive to Covid disruption, so any signs the Omicron outbreak could be less damaging than expected are likely to help stocks, analysts said.

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In Britain, Boris Johnson’s government has resisted imposing significant new Covid restrictions, and on Tuesday leading epidemiologist Neil Ferguson said the spread of Omicron among adults could have plateaued in London.

Germany relaxed travel restrictions on the UK and several southern African nations on Tuesday, while Britain’s travel rules, which include expensive testing before and after flights, will be reviewed later this week.

The gains helped the European Stoxx 600 travel and leisure index to rise more than 2 per cent and reach its highest level since late November, before Omicron was declared a variant of concern by the World Health Organisation.

Shares in IAG and EasyJet have risen 25 per cent since mid-December, although they are still trading well below their pre-pandemic levels.

“These stocks went seriously low back in December . . . so people are getting away from that extreme negativity,” said Alex Irving, an aviation analyst at Bernstein.

While winter travel has been badly hit by Omicron, no airline has yet warned over a hit to next summer’s peak season.

Demand

Shares in airlines including Lufthansa, Air France and IAG were also boosted by a Monday Citigroup research note that predicted a strong recovery for long-haul-focused airlines, thanks to booming demand for air freight, a stronger-than-expected recovery for corporate travel and the anticipated reopening of Asian borders.

Shares in major US airlines also rose between 3 and 4 per cent on Monday, as investors shrugged off thousands of flight cancellations caused by Covid-related staff absences and severe weather to focus on the sector’s longer-term prospects.

“International travel is forecast to be very strong this summer [for US airlines] . . . we think the Omicron variant delayed the return to significant international travel by about two months,” analysts at investment bank Cowen said.

– Copyright The Financial Times Limited 2022