Investing any money in the airline sector right now and might seem like a risky prospect. Indeed, the easyJet (LSE: EZJ) share price is trading close to a multi-year low. The performance of its peer, IAG (LSE: IAG), isn’t much better.
And the outlook for the sector isn’t much better. Many airline industry executives don’t expect demand to return to 2019 levels until at least 2022. That suggests there could be further pain ahead for the airline business over the next 24 months.
However, companies with strong brands like British Airways-owner IAG and easyJet share price could prosper in the long term as demand returns.
The easyJet share price on offer
EasyJet has acted quickly to try and stem the fallout of the coronavirus crisis. While the airline plans to resume flying about 30% of its standard capacity in July, August, and September, it’s also axing 4,500 jobs.
But while the easyJet share price may encounter further turbulence in the short term, the company’s brand value should ensure the business remains relevant over the long run.
There are a few carriers in Europe that have the reputation for low prices and service of easyJet. The company’s size is also a definite advantage. Its network and fleet of new planes have helped it edge out more established peers, such as British Airways.
As such, the company seems well-positioned to stage a recovery over the long run. The easyJet share price has fallen around 50% since the beginning of the year. That suggests it offers a wide margin of safety at current levels. What’s more, it implies a return to historic levels of profitability may see the stock jump 100%.
IAG appears to offer similar upside potential to the easyJet share price. Like its peer, the group has also been slashing costs to try and stay alive in the coronavirus crisis. These efforts haven’t stopped investors from dumping the shares. The stock is off around 50% of year-to-date.
Still, as one of the largest airline groups in the world, IAG is big enough and has the financial flexibility to weather the coronavirus storm. It could potentially come out stronger on the other side if financially-weaker peers collapse.
Therefore, after recent declines, shares in the airline may also offer a wide margin of safety at current levels. Analysts are currently expecting the company to return to profit in 2021.
Based on these projections, IAG shares are dealing at a forward price-to-earnings (P/E) ratio of 4.9. That’s substantially below the company’s long-term average of around 10.
Once again, these numbers imply the stock offers a wide margin of safety at current levels. They also suggest that if the valuation returns to its historic average, the stock could double from current levels.
Based on all of the above, now could be a great time to buy the easyJet and IAG share price as part of a well-diversified portfolio.
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Rupert Hargreaves 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.