As I write, the share price of the FTSE 100 company International Consolidated Airlines Group (LSE: IAG) is the biggest gainer today. It’s followed closely by easyJet (LSE: EZJ), making it a good day for airlines. Since last month, shares impacted by Covid-19 have gotten some relief. It continues even now. At the same time, 2020 has been so hard on aviation, these companies have been left quite financially weak.
Deciding whether to buy these shares or not depends on whether you think the odds are balanced in their favour. I think they are. In fact, I’ve been a shareholder in easyJet since earlier this year when things weren’t looking good at all. If I bought it then, I see no reason not to buy it now. In fact, I’m tempted to load up. Here are three reasons why airline stocks are attractive now:
#1. Appetite for flights to return
Late last month, easyJet said that searches for holidays and flights had increased by 200% in the UK. This suggested that demand was strong, which was also reflected in the response to its Black Friday sale. While the airline itself is expected to operate at a fraction of its total capacity even early next year, I reckon that this might change for the positive.
This is because of the solutions being put in place. IAG-owned British Airways is reportedly trialling testing passengers 72 hours before and after their trip. This can circumvent the need for a 14-day quarantine and increase air travel. Also, Covid-19 vaccination has started, which should begin to relax the situation over the next months.
#2. Financials can improve
With rising demand for flights, the financial health of airlines could improve as well. As of now, both easyJet and IAG are in the doldrums. This isn’t any bit surprising considering the limited business they did this year.
I don’t think their numbers will improve in a hurry though. I reckon that we’ll be well into 2021 before airlines can start flying anywhere close to capacity, at the very least. But if pent-up demand exists, as pointed out by EZJ, and airlines can fly at increased capacity, at least the financials can start mending as long as they serve profitable routes.
I reckon this alone will push share price further up. For proof, I think we just need to look at the airlines’ share price rally since November.
#3. Long-term investments
Realistically though, demand for air travel is expected to go back to 2019 levels only in the next two to three years. Not only is travel less likely because of the pandemic, but economic conditions will be somewhat uncertain for some time. People are less likely to holiday when they feel insecure about their financial future, because they’d rather save.
However, we at the Motley Fool are advocates of long-term investments. And I would buy these shares comfortable in the knowledge that they will reap real rewards only in the next few years, not weeks or months.
