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James J McCombie | Monday 22nd February 2021
The coronavirus pandemic was devastating for airlines like International Consolidated Airlines (IAG), the owner of British Airways, and Easyjet.In 2020, the industry-wide passenger kilometers (RPKs) where a paying customer flies one kilometer fell to one RPK , according to the CAPA fleet database, back to 1999 level
The number of passenger planes in use went from 23600 at the end of 2019 to 16700 back at the end of 2020.Although airlines have reduced the number of planes in active service, the load factor – a measure of how full the planes are – dropped to around 65%, which has not been the case since the 1990s
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It’s no surprise Easyjet’s share price has fallen 43% over the past 12 months, and IAG shares have also fallen 59% over the course of a year.Both companies posted sales declines in 2020 and issued sizable debt to raise cash British Airways announced today that it has received an additional £ 245bn Debt and won’t pay dividends to parent company IAG until the end of 2023, Easyjet signed up for a £ 1.4 billion five-year credit facility in January, bringing the total raised during the pandemic to £ 4.5 billion
Just looking at the IAG and Easyjet’s short-term issues, it’s easy to forget that industry growth was healthy before the pandemic, with the exception of 2001 and 2009, the RPKs in the industry had grown every year since 1996 and 2017 were the load factors the industry is closer to 80%, despite thousands more planes flying in the sky
The pandemic will end at some point. Perhaps the remote working experience on some business travel will be wiped out, and long haul travel will be taken with concern for a while. Even so, people will fly to the skies in large numbers again at some point, I think airline stocks are up on the verge of recovery, but there is still rough air ahead of us
There are four airline stocks listed in London.The ratio of market capitalization to revenue divides them into two groups: IAG and Easyjet with below average ratios and Ryanair and Wizzair with higher ratios Wizzair stock price is down 14 in the past 12 months % up, and Ryanair’s share price is up 6% over the past year. It appears that stronger cash positions and gentler debt accumulation during the crisis for Wizzair and Ryanair explain a large part of the valuation differences
Ryanair and Easyjet are competitors in the short-haul market, but Ryanair has a stronger balance sheet, but the IAG is restructuring to compete domestically with low-cost airlines such as Ryanair and Easyjet, so long-haul and business classes will likely take longer – Itineraries, if at all, have fully recovered
The short-haul competition between Ryanair, Easyjet and IAG is likely to be tough.For this reason, I would actually have bought shares in Wizzair.It is based in Eastern Europe and serves a slightly different short-haul market than the other three.However, even a younger and more rapidly growing Eastern European air travel market is not immune to a protracted pandemic If travel restrictions last longer than expected, no airline will be spared the pain
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James J McCombie owns shares in Wizz Air Holdings The Motley Fool UK has recommended Wizz Air Holdings The views on the companies mentioned in this article are those of the author and therefore may differ from the official recommendations we see on our subscription services such as Share Advisor, Hidden Winners and Share Pros At The Motley Fool, we believe that we can make better investors by taking diverse knowledge into account
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World News – UK – Would I buy IAG or Easyjet shares today?