Airline stocks have benefitted from new flight schedules — further evidence that the U.S. is on the road to a post-pandemic recovery. The sector has enjoyed a roughly 12% bump as investors cheered every sign of demand rebound.
Now that American Airlines (NASDAQ:AAL) has revealed plans to grow its summer schedule, the optimism regarding a return to travel has more or less been priced in. With most estimates still pegging the return to 2019 traffic levels at 2023 at the earliest, investors should remain cautious on the sector.
Sanjiv Sabherwal, Goolsby-Fouse Endowed Chair, distinguished teaching professor and chair of the department of economics and real estate at the University of Texas at Arlington, wrote in an email to InvestorPlace that, “Hospitality, transportation, and retail are three of the hardest-hit sectors of the economy. Consequently, we are seeing many hotels, restaurants, airlines, and retailers cut dividends. This trend is likely to continue in the near future.”
With that said, there’s still room to ride the recovery in airline stocks. You just have to be willing to gamble on international travel. Domestic travel is likely to be the first to return as the public gingerly tests the boundaries of a lockdown-free lifestyle. International travel will probably take more time — not only because the public has to consent to it, but also because of border regulations which will take time to soften as lawmakers try to avoid a second novel coronavirus wave.
Travel in Europe is one place to start. Why? Flights within the continent can easily be compared to domestic U.S. flights. Here’s a look at three carriers that will benefit tremendously from Europe reopening.
Airline Stocks: Ryanair Holdings (RYAAY)
If there’s one company that will deliver to its investors in a time of crisis, it’s low-cost Irish airline Ryanair. CEO Michael O’Leary has become famous for angering everyone from his crew to his passengers in the name of shareholders. The pandemic is no different.
But love him or hate him, investors have to commend O’Leary for the fact that he runs a tight ship. Ryanair is arguably one of the best European airlines because of its ultra-low debt and focus on profit.
RYAAY stock has already staged an impressive recovery in the wake of the coronavirus, but the firm has a lot more to gain once Europe reopens. As more countries start to lift travel restrictions, Ryanair will be able to open up more of its flights.
The firm should feel a particular benefit if the United Kingdom agrees to relax its traveler quarantine restrictions.
Wizz Air (WZZAF)
Like Ryanair, Wizz Air is a low-cost European carrier whose tightly run operations were solid going into the coronavirus crisis. The firm has a unique position serving Central and Eastern Europe and will benefit from the return to travel around the continent. Wizz has already restarted some of its flights. However, the United Kingdom’s harsh traveler quarantine rules will weigh on its return to a normal schedule.
The firm has said it plans to aggressively discount fares in order to stimulate demand, which will weigh on Wizz Air’s profits through 2021. However, it seems pent-up demand in Eastern Europe puts Wizz in a strong position to recover ahead of some of its peers.
The firm said that its flights in Bulgaria had ramped up to roughly 50% of capacity. Planes in general were around 70% full. The company is planning to operate 70% of its July and August schedule, a move that could prove profitable if the pent-up demand persists.
Delta Air Lines (DAL)
European carriers aren’t the only ones that will benefit from Europe’s reopening. Airlines in the U.S. also stand to gain. Soon, they will be able to reopen some of their most profitable business routes. Delta is one such beneficiary whose future growth strategy — at least up until the pandemic — leaned heavily on travel to Europe.
Delta had been revamping some of its planes in order to increase revenue on long-haul flights to Europe. The company’s “Premium Select” seats offered an option in-between coach and business class. These seats give travelers more comfort for a fraction of the price of a business class seat. According to CEO Ed Bastian, demand for those seats was increasing steadily.
Now, Delta is in a prime position to sell Premium Select seats as travel to Europe returns. Businesses looking to cut costs as well as recreational travelers who don’t want to be packed into a coach cabin amid virus concerns are likely to appreciate the modest price increase for a Premium Select seat.
Laura Hoy has a Finance degree from Duquesne University and has been writing about financial markets for the past 8 years. Her work can be seen in a variety of publications including InvestorPlace, Benzinga, Yahoo Finance and CCN. As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities.
