As the coronavirus pandemic struck at the end of February, travel and airline shares were among the worst hit. This included over-50s holiday and insurance company Saga (LSE:SAGA) and British Airways owner International Airlines Group. Between the end of February and early March, the Saga share price plummeted nearly 70%. It briefly rebounded in early June but has since fallen another 33%.
For those unlucky investors buying Saga shares at the beginning of the year, or at its recent peak in June, the cruel reality of stock market risk will be crystal clear. So, are these stocks worth considering in the current coronavirus climate?
Risks ahead for the Saga share price
When the lockdown began and panic spread across the country, the British government scrambled to save the economy. It introduced the furlough scheme to prevent a surge of redundancies, borrowed billions from the Bank of England, raised billions more from selling UK Government bonds in gilt auctions and offered a variety of Covid-19 grants and loans to help struggling businesses. All this brought with it an air of (admittedly fragile) calm and encouraged the stock market to bounce back from its March low.
As Britain is now beginning to ease the lockdown and reopen the consumer economy, hope continues. However globally, the pandemic is far from over and there is a genuine worry it could inflict further damage on the UK. This is a particular concern for the travel industry, which cannot get back on track until the coronavirus is on its way out.
The earliest the travel industry will resume is August, but that could well be delayed again. All going well, Saga intends for its newest Cruise ship, Spirit of Adventure, to set sail in November.
Saga has access to £50m in credit facilities, has put its debt repayments on hold and cancelled dividends. It plans to sell its Motorcycling Services division this month for £23m and is relying on income from its insurance division to help keep it afloat. Robin Shaw, the Saga Travel CEO, announced his resignation earlier this week, after a 10-year tenure.
Times ahead will be tough no matter what, but if demand for cruises has been permanently damaged then the Saga share price will struggle to ever recover. All in all, I think there are huge risks in buying shares in Saga right now. And I do not think it is a wise investment for newcomers to stock market investing, in particular.
Time to buy the dip?
So, could International Airlines Group fare any better? IAG is pinning its hopes on securing long-term credit and a restructuring. British Airways plans to cut 12,000 jobs, for instance. The group does not expect to return to business as usual until at least 2023, which makes its share price look like a very long-term play. IAG has a price-to-earnings ratio of 3, it has cancelled its dividend and earnings per share are 78p.
Unfortunately, with so much uncertainty looming over the future of travel, I think both these stocks are very much a gamble. I do not think now is the time to buy the dip in the Saga share price, nor IAG. There are still bargains in the FTSE 350 that offer less risk and more certainty. I recently discussed the BAE share price and other FTSE 100 constituents, which I think look less precarious.
