Aviation has been through a tumultuous 2020, as we know. Yet, share prices of airline stocks have moved very differently from one another. Consider easyJet (LSE: EZJ), International Consolidated Airlines Group (LSE: IAG), and Wizz Air (LSE: WIZZ). Among these, the IAG share price has performed the worst. Its share price is actually down compared to the same time last year. Wizz Air shares on the other hand, hit all-time highs last month. EasyJet is somewhere in between. Its share price has recovered by 46% over the year.
So which one has the highest growth potential now?
Wizz Air shares are flying high
First, let us consider the Hungary headquartered low-cost airline, Wizz Air. Being a low-cost airline could be an advantage at a time when consumers are more likely to be cost conscious than before.
Its load factor, which is the proportion of passengers carried to capacity is also improving. For February it was at almost 70%, which is higher than the rolling 12 month average of 67%.
There are negatives here, too. Its financials were weak as per the last update, which is to be expected. And its price-to-sales (P/S), a valuation measure that helps in comparing it to peers, is at 4.4 times compared to 1.4 times of easyJet.
easyJet shows recovery
And this is when easyJet’s load factor is not that much different from that of Wizz Air. For the quarter ending 31 December 2020, it was 66%. And it expects demand to improve over the coming months as the lockdown eases in the UK. This bodes well for the airline.
It has had to raise funds to meet its costs, though. Just in February, it raised bonds with a seven-year maturity period, which were encouragingly oversubscribed. But I am not sure if this is a sustainable solution if the pandemic (and lockdown) manages to drag on because coronavirus variants, for example.
IAG’s battling challenges
Arguably, such a scenario would be worse for the British Airways owner IAG, whose share price is already down and out. It has also recently availed of a $1.75bn revolving credit facility with banks and issued bonds as well.
Companies can issue bonds as routine business related operations too, but at present debt raising needs to be flagged because it is it is to stay afloat.
Yet, I am not entirely pessimistic about IAG. The contrary, in fact. It is a huge airline group, whose demand will take time to come back for a fact. But unless there is any sign yet that it can go under, I think this may actually be a good time to consider buying the stock. It is way below its pre-crash levels and should recover as more travel starts happening.
The takeaway
There is a risk to buying all aviation stocks right now. But if I am willing to take the risk, I would buy IAG for the long term. I already hold easyJet, and Wizz Air shares could be attractive on a dip too.
