The Motley Fool

Should I buy airline stocks today? Here’s my view on the struggling sector

Image source: Getty Images

I’m dreaming of jetting off on holiday to Spain or France this year. Sitting on a sunny terrace having lunch without a care in the world.

A dream is all it is at this stage. So with international travel having been heavily restricted over the last year, where does that leave airline stocks as an investment?

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

The industry has been decimated by the impact of Covid-19 restrictions. The share prices of International Consolidated Airlines Group (LSE:IAG), easyJet (LSE:RYA) fell an average of 55% in the last year.

Interestingly, the Ryanair (LSE:RYA) share price has recovered to pre-pandemic levels. So where do I think these airline stocks are headed in the future?

The sector

Having covered some of these companies individually over the last few weeks, I’m clear on my stance that I fully expect airline stocks to recover in the long term.

Things look bleak at the moment with international travel greatly restricted. The UK has moved to introduce mandatory hotel quarantine for international arrivals.

However, I’m an investor who focuses on the long term rather than seeking short-term profits. And I think airline stocks will return to regular flying numbers in five years.

They may not do so within the next 12 months, though. But I think business and leisure travel will return in a significant way. I also think pent-up demand for holidays will drive a lot of revenue for airline stocks when some degree of normality eventually happens.

IAG

British Airways owner IAG has seen its performance dive the most since Covid-19 began. However, at 160p, the shares seem really cheap to me today. 

The company recently completed the acquisition of budget carrier Air Europa in a cut-price deal, and with smaller airlines struggling even more, further takeovers could happen.

I see the rollout of vaccines as being a major upside for IAG too and the main reason why I would buy it. It must be noted that the shares are really volatile however, and any further market setbacks in the fight against coronavirus could see the price fall further.

easyJet

FTSE 250-listed easyJet is going through a transition. CEO Johan Lundgren’s wants to take it a little more upmarket to compete with the likes of British Airways. But it’s been difficult to tell how that has gone with travel stunted so much. 

I have reservations about that strategy, and also about the firm’s costs — ongoing costs at easyJet are higher than other airlines at €53 per passenger. The company will need to return to profitable trading soon to see any growth in the next few years.

However I feel these challenges can be overcome if normal trading conditions resume within the next year and still see plenty of value in the shares at 840p.

Ryanair

Ryanair shares have actually risen 4% in the last 12 months, despite the pandemic. Its solid balance sheet is perhaps one reason for this.

While the balance sheet may take a hit by the end of 2021 with further restrictions, I’m encouraged by analyst predictions of a return to earnings of 56 cents per share by next year.

With current passenger numbers 80% lower than this time last year, there’s a risk to buying Ryanair shares right now, but like easyJet and IAG, I’m confident of a sector recovery and would buy Ryanair for my portfolio today.

One stock for a post-Covid world...

Covid-19 is ripping the investment world in two…

Some companies have seen exploding cash-flows, soaring valuations and record results…

…Others are scrimping and suffering.

Entire industries look to be going extinct.

Such world-changing events may only happen once in a lifetime.

And it seems there’s no middle ground.

Financially, you’ll want to learn how to get positioned on the winning side.

That’s why our expert analysts have put together this special report.

If the pandemic has completely changed our lives forever, then they believe that this stock, hidden inside the tech-heavy NASDAQ, could be set for monstrous gains...

Click here to claim your copy now — and we’ll tell you the name of this US stock… free of charge!

conorcoyle owns shares of easyJet. 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.