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Short-haul vs long-haul airlines – who’s got the bumpier ride?

A closer look at the airline industry and who’s in the better position to benefit from any recovery.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.


All information is correct as at 30 June 2021 unless otherwise stated.


Airlines have been one of the hardest hit sectors over the past year. Planes have been sitting on the tarmac for over a year now, leaving even the most efficient operators with massive holes in their balance sheets.

That opens the door for some big shifts in the industry, and consequently some investment opportunities. With passenger traffic inching back toward 2019 levels, airline stocks have been closely scrutinised. But with the goal posts for a return to normalcy constantly shifting, it’s worth remembering that not all airlines are created equal.

Every carrier brings something different to the table, but the biggest divide in the sector is the types of routes they fly – long-haul or short-haul.

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A long way from recovery

With the vaccine rollout uneven around the world, long-haul travel isn’t expected to resume in earnest until 2023 at the earliest.

Add to that the mountains of debt airlines have taken on to get through the last year, and you have a good chance of turbulence ahead.

Plus, long-haul operators depend on price-insensitive travellers who are willing to pay a premium for upgraded seats and direct flights – the top 10-15% of customers make up roughly 40% of overall revenue. Lots of these customers come from the corporate world, a segment that might never recover fully. The others might not have the same disposable income to spend on legroom and pre-flight champagne if the economy takes a turn for the worst.

Delta Passenger Revenue Breakdown

Source: Delta Air Lines company accounts. Delta Air Lines' financial year runs to the end of December.

There are some silver linings, though. For one, most long-haul carriers also operate short-haul flights. America’s Delta Air Lines is one example. The group makes most of its money from domestic US flights, but also operates a global long-haul network. The domestic market in the US has been at the forefront of the airline recovery. That’s mainly because interstate travel is unrestricted, making this a strong crutch to lean on while international travel limps back to life.

Delta’s taken on a hefty debt pile over the past year though, and that will take time to whittle down. The group’s net debt position has nearly doubled in just a year and it’s still lacking the cashflow needed to chip away at the sum. Still, Delta’s in a strong position with a return to profitability possible as early as September. However its valuation, which is some way above the long-term average, already reflects that.

Short and sweet

On the other side of the coin are the short-haul carriers like Ryanair and easyJet, whose businesses mainly rely on packing holidaymakers into planes with low-cost fares. The short-haul space has become increasingly competitive over the past few years, with ticket prices being one of the only carrots to attract customers. The pandemic has changed that reality, squeezing some airlines out of their bases and grounding entire fleets for good.

But those who are left standing to pick up the pieces are ready and waiting to capitalise on the pent-up travel demand.

While the long-haulers will have to wait until 2023 or beyond for any type of full recovery, the short-haul space should see improvement sooner.

Ryanair is one such short-haul network. Although the group’s main way of making money is through ticket sales, it also relies on its passengers spending on upgrades, food and drink to pad its profits.

Ryanair Passenger Revenue Breakdown

Source: Ryanair company accounts. Ryanair’s financial year runs to the end of March.

For Ryanair, the timing of a return to normalcy is of the essence. The low-cost carrier used the pandemic as an opportunity to grow its presence in places it had previously struggled to gain a foothold. The group also used the sector’s decline to its advantage, increasing new aircraft orders to take advantage of favourable pricing.

If the tapering of restrictions had gone off without a hitch, Ryanair would have been laughing all the way to the bank. If things improve steadily, it could still execute on the bold strategy and breakeven this financial year.

That seems to be the opinion of the market – Ryanair currently boasts a price-to-book ratio of 3.54, compared to its 3.09 long-term average. However, with lots of European countries taking a cautious approach to travel, the group could find itself laden with hundreds more aircraft than it can currently possibly use.

The other side of the short haul coin is easyJet. Its more cautious approach to navigating the pandemic doesn’t offer the same growth potential as its counterpart, but also comes with less risk. The airline relies primarily on ticket sales, with extra purchases like upgrades and baggage additions contributing to revenue to a lesser extent.

easyJet Passenger Revenue Breakdown

Source: easyJet annual reports and accounts. easyJet's financial year runs to the end of September.

easyJet’s strategy rests on its route network in and out of big, convenient airports. The group’s route network could play well among hygiene-conscious travellers in a post-pandemic world. Most will be keen to fly directly to their destination and avoid public transport where possible.

That strategy means the group had much less incentive to throw its weight around and snap up new destinations. easyJet kept its focus on controlling costs and tailoring its operations to cater to the whims of the government as the reopening started. If the freeze-dance between the government and travellers continues through the summer, easyJet looks better positioned to wait it out.

easyJet’s share price reflects its conservative stance, with a price-to-book ratio of 2.15, roughly in line with the long-term average.

No one wins if no one flies

Short-haul is undoubtedly in a stronger position than long-haul. But being the best in a bad group isn’t necessarily a badge of honour. Valuations are high, all things considered, adding to the risk of near-term ups and downs. No airline can be profitable with most of its planes on the tarmac, and unfortunately that’s the reality for most of the sector right now.

This article isn’t personal advice. If you’re not sure if an investment is right for you, ask for advice. All investments fall as well as rise in value, so you could get back less than you invest. Past performance isn’t a guide to the future.

Unless otherwise stated estimates are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Past performance is not a guide to the future. Investments and income they produce can rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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