There is no hiding it – the travel sector, in particular airline stocks, are currently benefiting from plummeting oil prices. On January 12th, the Brent crude oil price dropped by 2.6% to $48.74, to a six-year low. US crude oil was also at its lowest level since 2009, down by 2.3% to $47.25 a barrel. On the back of this news, German airline Lufthansa said it expected its fuel bill for 2015 to be 13% lower than previously forecast, as a result of the low oil price.
Passengers are also turning to the low-budget UK airlines and others to escape the “winter blues” in January. I have picked three airline stocks worth investing in or re-visiting, whilst Brent crude continues its’ descent below $50 a barrel and office workers continue to spend their above inflation pay-rise on a dream holiday destination.
easyJet (LSE: EZJ)
This low-budget airline founded by Sir Stelios Haji-Ioannou in 1995, reported an upsurge in passenger numbers before Christmas. The load factor – a measure of how full its aircraft were – increased by 0.5 percentage points to 89.5%, with passenger numbers by 3.1% to 4,386,296 in November against the same month in 2013. In November, the Luton-based carrier also reported a rise in annual pre-tax profits by 21.5% to £581m, with a 6.3% rise in revenue to just above £4.5bn. Due to this positive set of results, broker Liberum lifted its target price from 1,650p to 1,725p and repeated its “Buy” recommendation. Liberum analyst Gerald Khoo said although the stock’s valuation is currently at a premium to its five-year average, this is “justified” by the “rapid and dramatic improvement” in the airline’s margins and return on invested capital in recent years.
Ryanair (LSE: RYA)
Another low-budget airline doing well on the back of the falling oil price is easyJet’s rival, Ryanair. Ryanair’s shares hit a record high in early January, boosted by a rise in passenger numbers to 6.02 million in December. This rise translates to an 88% rise in seat occupancy for the month. The low-budget airline’s profit warnings of 2013 seem a distant memory for investors. It has also scrapped quite a few unpopular policies that weren’t currying favour with potential customers — for instance, Ryanair now allow passengers more carry-on baggage and have cut punitive charges. It has also improved its website and launched a service aimed at business customers. In December, Ryanair raised its forecast for pre-tax profits this year to between £636m-£655m), up from an earlier estimate of £584m-£600m.
International Consolidated Airlines (LSE: IAG)
The owner of British Airways and the Spanish carrier Iberia, ICAG group is currently in pursuit of Aer Lingus. After suffering several rebuffs, it raised its cash offer from an earlier €2.30 to €2.40 per share. If the takeover bid was successful, ICAG would gain more take-off and landing slots at Heathrow, and increase its passengers numbers on one of the world’s busiest routes (London to Dublin). Analysts have talked of the merits of the Aer Lingus merger for ICAG group including strengthening its transatlantic market position. Broker Liberum has reiterated its “Buy” stance, with 16 other brokers viewing the stock as a “Strong Buy”.
