Could the share prices of airlines like easyJet be set to soar?

Summer holiday bookings are rising, people seem eager to travel when allowed, so airlines stocks might be ready for take-off. But there are a few things I need to consider before I get carried away.

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The easyJet share price sits 45% below where it was a year ago. In fact, the entire UK-listed airline sector in a similar plight. Only one airline stock, WizzAir, has seen its share price climb over the last 12 months, by 7.1%. But could things be looking up for airline stocks in general?

EasyJet reported in a trading statement released yesterday that summer 2021 bookings were 250% higher than last year. Demand for winter 2021–22 was also said to be very positive. Saga, which specialises in holidays for the over 50s, has also reported a jump in bookings for this year and next.

Beach or bust

We have, however, been here before. In November 2020, it was Easter bookings that were surging on positive coronavirus vaccine news. A summer vacation boom, which might extend into 2022, looks a little more likely. But a boom would require that people have the cash to spend on holidays.

Given that the pandemic has caused job losses, and in the case of furloughed staff, reduced pay, is there reason to think that cash is burning a hole in pockets? Well, the Office for National Statistics publishes an estimate of the UK households saving ratio. This is the money households have available to save as a percentage of their total disposable income. The data for 2020 is interesting: 9.1% for the first quarter and 29.1% for the second (the last available period). That second-quarter reading is the highest on record.

Now I would imagine that total disposable income has fallen. However, the amount saved seems to have disproportionately risen. Considering that opportunities to spend have been reduced for nearly a year, I think there is good reason to believe households might be relatively flush with cash over all. Furthermore, people seem eager to get out and do something once permitted and safe to do so.

Vaccinations are key

An uptick in demand for travel bodes well for the easyJet share price and all airline and travel stocks. Getting enough people vaccinated by the time summer rolls around, particularly in Europe, is going to be crucial. Tourists will be welcome in Spain once 70% of its population has been vaccinated. We’ll likely need proof of vaccination before travelling. However, that could save travellers up to £150 by forgoing the need for a coronavirus test.

Despite the slow start to vaccination programmes across Europe as a whole, there are still six months to go before the peak summer holiday season starts. Looking at analyst recommendations for the UK airline sector, I can see that 66% of them are buys, with just 8% sells. Like all forecasts, these could change based on future developments and are not something to rely on, but the trend suggests optimism

Whatever happens, I expect that easyJet and other airlines’ share prices will be choppy, with investors reacting to the slightest bit of bad news. If I’m feeling confident about a summer travel boom, I might find opportunities in the sector. But I’ll have to be mindful that a cash crunch could present itself if bookings are cancelled (especially those Easter ones) because restrictions are still in place. Although not an airline, I think Saga might be worth taking a closer look at. Its customers are more likely than most to be in a position to prove their vaccination status by the time summer rolls around.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

James J. McCombie owns shares of Wizz Air Holdings. The Motley Fool UK has recommended Wizz Air Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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