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James J McCombie | Monday, February 22, 2021
The coronavirus pandemic has been devastating for the actions of airlines like International Consolidated Airlines (IAG), owner of British Airways, and Easyjet In 2020, industry-wide revenue passenger-kilometers (RPK) – driving a customer paying one kilometer is equivalent to an RPK – returned to levels last seen in 1999 according to the CAPA fleet database
The number of passenger planes in service increased from 23,600 at the end of 2019 to 16,700 at the end of 2020 Although airlines have reduced the number of planes in active service, the load factor – a measure of the fill rate of airplanes – has fallen to around 65%, which is a level not seen since the 90s
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It’s no surprise that Easyjet’s share price has fallen 43% in the past 12 months IAG stock has also fallen 59% in one year Both companies have seen a decline of their income in 2020 and issued large debts to generate cash Today, British Airways announced that it had received an additional £ 2 $ 45 billion in debt financing and will not pay dividends to its parent company, IAG, until the end of 2023 In January, Easyjet signed up for a £ 1 loan facility of $ 4 billion over five years, bringing the total raised during the pandemic to £ 4.5 billion
Looking only at the short-term problems of IAG and Easyjet, it’s easy to forget that industry growth was healthy before the pandemic With the exception of 2001 and 2009, RPKs from industry have grown every year since 1996 In 2017, despite thousands more aircraft taking off, industry load factors were more like 80%
The pandemic will eventually come to an end Perhaps the experience of working remotely will eat away at some business travel and long-haul travel will be taken with trepidation for a while Yet eventually people will take to the skies in great numbers again Airline stocks are, I think, on the cusp of picking up, but the air is still choppy
There are four stocks of airlines listed in London Market capitalization to revenue ratios divide them into two groups: IAG and Easyjet with below-average ratios and Ryanair and Wizzair with low share price Wizzair has risen 14% in the past 12 months and Ryanair’s share price has risen 6% last year It looks like stronger cash positions and increased debt during the crisis for Wizzair and Ryanair largely explains the difference in valuation
Ryanair and Easyjet are competitors in the short-haul market, but Ryanair has a stronger track record But IAG is restructuring to compete with low-cost airlines like Ryanair and Easyjet nationally Its long-haul and class routes business will probably take longer to fully recover, if at all
Short-haul competition between Ryanair, Easyjet and IAG is likely to be fierce For this reason, I would have bought and actually bought shares of Wizzair It is based in Eastern Europe and serves a Short-haul market slightly different from the other three However, even a younger and more robust growing Eastern European air transport market is not immune from a protracted pandemic If travel restrictions persist longer than expected, no airline will be spared the pain
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James J McCombie owns shares of Wizz Air Holdings The Motley Fool UK recommended Wizz Air Holdings Opinions expressed on the companies mentioned in this article are those of the author and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro At The Motley Fool, we believe that considering a diverse range of information makes us better investors
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World News – UK – Would I buy IAG or Easyjet shares today?