As British Airways owner International Consolidated Airlines Group (LSE:IAG) fell more than 4% in Wednesday’s early deal stockbroker Charles Stanley (LSE:CAY) says flights being grounded because of Storm Barra are the least of worries for the aviation industry.
Will Walker-Arnott, Charles Stanley senior investment manager, in a note has highlighted that the travel industry was already struggling, and investors are avoiding the sector’s shares.
The latest fears for travel come as holiday group TUI AG (LSE:TUI) warned fears over the omicron variant could impact its winter holiday programme, although it predicted bookings for next summer will return to near pre-pandemic levels as vaccination rates continue to rise.
IAG shares are the biggest faller in the cohort over the past month, losing some 21%, as the world reacted to the omicron variant of COVID-19 and various travel bans were renewed – with IAG’s conglomerate of so-called ‘flag-carrier’ brands (British Airways, Iberia, and Aer Lingus) particularly sensitive to disruption of long haul and transcontinental routes.
Short-haulers are far from immune either.
easyJet plc (LSE:EZJ) (down 3.18% today) at 536.6p, has lost around 17.5% over the past month whilst Ryanair Holdings PLC (LSE:RYA) (down 3.2% today at €15.21) is off some 15% and Eastern Europe focussed Wizz Air Holdings (AIM:WIZZ) (down 2.96% today at 4,324p) is around 11% lower over the same period.
“As COVID restrictions return, it feels like one step forward and two steps back for travel companies,” Walker-Arnott said.
“For some aviation companies, capacity is still only at about 65% of what they provided pre-COVID and cash burn will once again be an issue. EasyJet recently raised £1.2bn in financial markets through a discounted rights issue and it seems increasingly likely that aviation companies will need to come back to the City with a begging bowl.
“In short, the aviation sector remains on life support and as a consequence is a volatile sector to invest - good timing is paramount.”
Shunning the airline sector, the senior investment manager said Charles Stanley prefers companies with “more consistent earnings profiles” found in the technology, healthcare and renewable energy sectors.