Brits love their holidays; it might have rather a lot to do with our inclement climate but every conversation I’ve had over the last few weeks seems to have circled back to summer sun. Who managed to grab a few foreign rays and who didn’t? I confess my Scottish sojourn was memorable, but I still feel somehow cheated as the last three family holidays have been British-based.
COVID-19 restrictions decimated the tourist industry and the Government’s traffic light system only seemed to create confusion and erode confidence, but there are vibrant green shoots – namely speculation that red tape might be stripped back – and investors might well be considering whether it’s time to look again at the sector.
Seven-day average of daily flights reaches post-pandemic high in September 2021
While sun-seekers won’t be able to help themselves, global uncertainty is expected to clip their wings…
The first week of September delivered the highest average number of UK flights seen for almost 18 months and the latest GDP figures for July showed growth of 72.5% in travel services.
But that doesn’t mean the sector will simply dust itself off and return to the status quo. British Airways owner International Consolidated Airlines (IAG) seems to have concluded that the game has changed completely. The fact it’s considering dipping a toe back into the no-frills sector gives a clear indication of the direction of travel it is anticipating, at least in the short term.
While sun-seekers won’t be able to help themselves, global uncertainty is expected to clip their wings, as will the issue of insurance. Most are expected to plump for the security of the package deal and keep their explorations fairly close to home for now.
Business travel, on the other hand, BA’s bread and butter, is a different beast. Companies have embraced video conferencing; deals have been done and relationships have (hopefully) been maintained.
There will undoubtedly be some need for in-person meetings, particularly when it comes to developing new relationships, something the boss of Lloyd’s of London admitted recently on the BBC’s Today programme that the business has been missing, but there are other considerations. Cutting back on travel means money can be saved and carbon footprints softened.
Which airlines can seize post-COVID opportunities?
With planes grounded for long months, airlines have haemorrhaged money. EasyJet (EZJ) has announced it needs to tap shareholders for another £1.2 billion, primarily to help it deal with the slow pace of UK air travel recovery but also to take advantage of any opportunities that might come along.
But all the noise surrounding the rights issue couldn’t drown out the big news that EasyJet itself was being considered by another airline as a potential opportunity. Wizz Air (WIZZ) is widely speculated as being the would-be poacher and, despite the fact the bid has already been fought off, it has raised speculation that the comparative weakness of UK airlines could result in more takeover approaches.
Both Wizz Air and Ryanair (RYA) have fared better than their UK counterparts as air travel across Europe has rebounded more strongly. Heathrow – Europe’s busiest airport before the pandemic – has been shunted into 10th place, with rivals including Schiphol, Paris and Frankfurt all recovering at a much quicker pace.
Performance of UK-listed airline stocks since end of February 2020
Source: SharePad, 13 September 2021
… [S]entiment is weak towards the industry which does still look vulnerable, and that’s often seen as the best time to strike.
Airlines will be jostling for position as business picks up and snapping up a competitor is a sure way of supercharging growth right out of the gate. Any M&A action could have a positive effect on share prices, not just for those companies on the front line, but the whole sector.
In what’s now a well-trodden tale, sentiment is weak towards the industry which does still look vulnerable, and advisers and investors consider that that’s often the best time to strike.
US airlines certainly can’t be ruled out of the fray. Air travel Stateside has proved remarkably resilient, thanks in no small part to internal schedules. Despite the uncertainty afforded by the Delta variant and various devastating climate events, US passenger numbers have edged back to normal over the summer.
Even with the continued flight ban between the UK and US, a new player has joined the transatlantic team. Jet Blue’s inaugural flight to London signals the anticipation that an end to restrictions will lead to a surge in pent-up demand.
US passenger numbers recovered significantly by summer 2021
Source: TSA checkpoint travel numbers
Is now the right time to buy? Advisers are well aware there’s never a sure answer to that question, particularly when there are still so many variables at play. Will the Government scrap the requirement for travellers to pay for costly PCR tests? Will the traffic lights be switched off or will another lockdown turn them all back to red? So far, those airlines that have survived the pandemic have been able to shore up enough support to position them to take another knock if it comes. What’s clear is the world wants to fly and, given a chance, it will.
Past performance is not a guide to future performance and some investments need to be held for the long term.
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