It looks like your browser is not up to date.
This means our website may not look and work as you would expect. Read more about browsers and how to update them here.

Skip to main content
  • Register
  • Help
  • Contact us

Which airline stocks are ready to take off?

We look at three of the airline industry’s biggest players as we kick off the summer travel season.

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.

The pandemic has caused lasting damage to airlines. Ballooning debt and drastic cost cutting has left the sector in a precarious long-term position. However, with travel restrictions easing it’s worth taking stock of the industry to see who looks ready to pounce on a potential summer season.

This article isn't personal advice. If you're not sure if an investment is right for you, ask for advice. All investments can fall as well as rise in value, so you could get back less than you invest.

Investing in individual companies isn't right for everyone – it's higher risk as your investment is dependent on the fate of that company. If a company fails, you risk losing your whole investment. You should make sure you understand the companies you're investing in, their specific risks, and make sure any shares you own are held as part of a diversified portfolio.

Playing the long game

IAG is the only long-haul carrier on this list, an unenviable position at the moment. Some of the short-haul carriers have been optimistic about an injection of passengers this summer. But rhetoric from IAG has been muted. That’s because long-haul is unlikely to spring back to life with the pandemic ongoing.

The group’s balance sheet wasn’t in tip-top shape before the pandemic and it’s going to be severely damaged coming out the other side.

At last check, net debt (readily available assets minus debt) stood at €9.7bn and is expected to rise and stay in the double digits in the years ahead. That’s in part because the group’s income isn’t expected to be back in the black this year. Analysts also don’t see profits approaching pre-pandemic levels anytime in the next three years. It’s going to be a long time before IAG has the firepower to make a meaningful dent in its debt obligations.

With that said, IAG shares reflect these issues. The group’s share price is still well below pre-pandemic levels.

IAG share price

Past performance isn’t a guide to the future. Source: Refinitiv, to 02/06/21

Investors are concerned that IAG won’t be the same business when things return to normal, and frankly so are we.

Management doesn’t expect passenger volumes to return to 2019 levels until 2023 at the earliest. Leaning on cost cutting and capacity reduction for that long is going to leave permanent scars at an operational level – the group might not be able to spring into action as nimbly as some of its peers when travel does resume.

Cheap and cheerful

Ryanair has long been known as Europe’s bare-bones, low-cost airline. That’s served it well up until the pandemic. But despite the group’s enviable financial position and familiarity with cost cutting, even the most efficient operation can’t make money with planes on the ground.

Not only did Ryanair report its first full-year underlying loss in more than a decade this spring, but the year-long disruption meant Ryanair’s net debt position increased more than fivefold to €2.3bn.

However, if a summer travel season materialises in July and August, Ryanair believes it’ll be enough to breakeven for the financial year. If that’s the case, the past year might not be more than a blip on the radar for Ryanair.

Management has pressed ahead with plans to expand its fleet, taking advantage of the Covid disruptions to secure additional discounts on the price of new planes. It’s also capitalising on the demise of its rivals to add new routes to its network.

It seems investors are banking on this eventuality as well. Ryanair’s share price has risen back to pre-pandemic levels. The group’s Price-to-Book ratio, which tells us how much investors are willing to pay for the business as a sum-of-its-parts, is well ahead of the 10-year average.

Ryanair share price

Past performance isn’t a guide to the future. Source: Refinitiv, to 02/06/21

But we’re hesitant to break out the €7 glasses of prosecco just yet. Even if summer travel resumes, there’s no guarantee that pandemic-weathered travellers will be squashing onto Ryanair’s planes.

Over the past year passengers have been more willing to pay for extra space. This could see some of the group’s usual customers look elsewhere for more personal space. Plus, only routes to green-listed countries are likely to see a spike in demand. For now, the list is limited and doesn’t include any of Ryanair’s current routes.

Easy to miss

Ryanair isn’t the only low-cost provider chomping at the bit this summer travel season, easyJet is in a similar position.

Like Ryanair, the group’s debt position has got a lot worse. Until 2019, easyJet’s cash outweighed its debt obligations every year since 2013. The decline in air travel saw the group swing to a loss in 2020, and another loss is expected for the financial year ending in September.

However, beyond that things are seen normalising relatively quickly, with 2023 profits forecast to exceed 2019 levels.

easyJet’s route network is its number one strength. Management was quick to adapt to changing travel restrictions and the group saw strong take up when it increased capacity to green list countries.

Unlike Ryanair, easyJet focuses on high-traffic airports that offer limited slots. This means the group’s airport and handling costs take a bigger bite out of revenue, but this could be a benefit in a world scarred by Covid. The additional public transport required to get to less-popular airlines could be off-putting, which would funnel more of the pent-up travel demand into easyJet’s planes.

So far, investors aren’t convinced that easyJet will take off post-pandemic. The group’s share price is still trading below its pre-pandemic highs and the price-to-book value is roughly in-line with the 10-year average.

easyJet share price

Past performance isn’t a guide to the future. Source: Refinitiv, to 02/06/21

We think this makes sense. easyJet took a conservative approach throughout the pandemic, keeping major strategy shifts and purchases to a minimum. That could be a good thing, if rolling travel restrictions persist.

But if travel takes-off this summer and normalcy is around the corner, easyJet could find itself on the back foot having passed on potential growth opportunities in favour of security.

The bottom line

Airlines are still in a precarious position. The vaccine rollout has been uneven across the globe, which has left passengers with limited options when it comes to international travel. Still, the beginnings of a recovery are present, particularly among short-haul carriers.

We’d caution against blowing these glimmers of hope into anything more though. The sector still has a long way to go before the future is clear and we’re expecting a reasonable amount of turbulence along the way.

One of HL’s non-executive directors is also a non-executive director at easyJet.

Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Past performance is not a guide to the future. Investments 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.


Share insight: our weekly email

Sign up to receive weekly shares content from HL

Please correct the following errors before you continue:

    Existing client? Please log in to your account to automatically fill in the details below.

    Loading

    Your postcode ends:

    Not your postcode? Enter your full address.

    Loading

    Hargreaves Lansdown PLC group companies will usually send you further information by post and/or email about our products and services. If you would prefer not to receive this, please do let us know. We will not sell or trade your personal data.


    What did you think of this article?

    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.

    Editor's choice – our weekly email

    Sign up to receive the week's top investment stories from Hargreaves Lansdown. Including:

    • Latest comment on economies and markets
    • Expert investment research
    • Financial planning tips
    Sign up

    Related articles

    Category: Investing and saving

    4 tips to make investing less stressful

    Investing tips - Social media can make investing seem stressful. But it doesn’t have to be. Here are 4 tips to make investing less stressful.

    Charlie Hutchence

    11 Jun 2021 4 min read

    Category: Investing and saving

    Pandemic leads to the rise of the zombies

    We take a closer look at what zombie companies are, why they’re on the rise and why investors should think twice

    Nicholas Hyett

    10 Jun 2021 5 min read

    Category: Shares

    Next week on the stock market

    We take a look at what to expect from a selection of FTSE 100, FTSE 250 and selected other companies reporting next week.

    Sophie Lund-Yates

    10 Jun 2021 0 min read

    Category: Investing and saving

    How the Lifetime ISA could help close the gender pension gap

    We take a closer look at how the Lifetime ISA could help close the gender pension gap.

    Isabel McDougall

    09 Jun 2021 5 min read