International Consolidated Airlines (LSE: IAG) shareholders have just had a great week, and it looks like continuing. On top of last week’s 17% rise, the IAG share price is up another 4.5% at the time of writing on Monday.
Budget airline easyJet (LSE: EZJ) took a hammering when it announced a new stock issue on 9 September. But even the its share price had gained 4% on the day by midday Monday. And easyJet shares put on 8% last week. In fact, the recent rise in the sector began on 15 September. Since then, IAG shares have gained 34%, and easyJet 25%.
The optimism at International Consolidated was boosted by a recent Sunday Times article. In it, the British Airways owner said that it has no plans to raise new cash through any equity issue. That’s taken a worry off investors who feared we’d see yet another call for fresh funding before IAG gets back to profits and positive cash flow.
Easing flying restrictions
And, despite easyJet not having been able to follow suit and get through the crisis without further new cash, sentiment appears to have improved across the sector. News that the US is lowering restrictions on travel from the UK has helped. As has the UK government’s decision to simplify its traffic light system for controlling international travel.
What does the bigger share price picture look like? International has still suffered more pain over the past two years with a 60% share price fall. The 40% drop for easyJet isn’t quite as bad.
Which is the better buy?
The big question now, though, is whether I’d buy either of these airline stocks for further recovery. My Motley Fool colleague Rupert Hargreaves makes a very good point when he writes of the two companies’ target market segments. IAG’s focus on long-haul aviation has hurt it more, and lies behind the bigger fall in the IAG share price.
Routes such as transatlantic ones generate strong profits, and they were pretty much choked off during the pandemic. That’s why news of the reopening of US-UK travel has had such a positive effect this week. The long-haul segment, however, still looks likely to be the last to fully recover.
And that helps explain why the easyJet share price hasn’t crashed quite as badly over the past two years. Short-haul flying is more flexible, can adjust more quickly to changing circumstances, and is likely to be quickest to recover from Covid restrictions. Which of the two, then, is the better bet for further share price gains?
Better IAG share price future?
Rupert believes that International Consolidated Airlines has the better future compared to easyJet now. I think I agree. I do see a decent probability that both the IAG share price and the easyJet share price will end the year further ahead, mind.
But I’m going to turn up my nose at the potential profit. Why? It all comes down to valuation. I didn’t think either company’s shares represented particularly good value before the pandemic. The much lower share prices today might look like better value. But once we take into account the bigger debts and share dilution at both, I’m just not seeing bargain valuations.
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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.