We can expect more of this alarmist stuff as Brexit proceeds: budget airline Ryanair Holdings (LSE: RYA) has warned that Britain could be left with no flights to Europe in March 2019 if negotiations with the EU fly off in the wrong direction. Could high-flying budget airline stocks be grounded as a result?
Up in the air
Ryanair has called for aviation to be treated as a matter of urgency in talks, as airlines need finalise their summer schedules for 2019 by March next year. Without a bilateral agreement, Britain will have to revert to historic WTO regulations that do not cover aviation, it said.
Negotiators have a year to come up with an agreement, but that is no time at all, given that nine months on from the referendum, Ryanair says it is no closer to knowing the impact on aviation. The early signs are that talks will progress slowly, with EU negotiators saying Britain must agree exit terms — including that £50bn bill — before trade talks can even begin.
Leaving the EU means leaving its Open Skies agreement, which is a worry for investors in Ryanair and budget eastern Europe-focused airline Wizz Air Holdings (LSE: WIZZ). Ryanair has already applied the brakes to British airports, saying that it will base no additional aircraft at its 19 UK airports this year. Growth will focus on the EU instead.
Budget rival easyJet has called for a “straightforward bilateral aviation agreement“, which doesn’t sound too arduous — it all depends on whether the will is there or not. The danger is that elements like this could become a political bargaining chip in negotiations. The other threat is that we see no action at all, especially with the EU saying today there will be no sector-specific deals.
Remember the panic in the immediate aftermath of the referendum, when Ryanair’s shares fell 23% from €13.70 to €10.53? Well they quickly recovered, and today trade at a heady €14.41, only just below their year high of €15.15. They dipped after this week’s warning, but recovered just as swiftly. Nobody is panicking yet.
Wizz fell even faster after Brexit, plunging from 1,995p to 1,415p, a drop of 29%, but again the FTSE 250 company has recovered a bit, and currently trades at 1,646p. Ryanair’s doomsday warning had next to no impact on its share price. Perhaps this is all too much for investors to think about right now.
Or maybe investors simply rate these companies too highly to sell them in a panic. Wizz, for example, recently reported a 19% annual increase in passenger numbers to 23.44m, with a 16.9% rise in seat numbers to 26.11m, and soaring load factors to boot. Ryanair is also enjoying double digit annual traffic growth rates, and the share price has trebled in the past five years.
Ryanair clearly wants to jolt negotiators into action, but if talks go nowhere things could get increasingly tense over the next year, and weigh on both companies’ share prices. Closed European skies are a concern, but that’s not enough to deter investors — for now.
Harvey Jones has no position in any 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.