Airline shares have been one of the worst performers in the past year. Prime Minister Boris Johnson recently announced a four-step plan to ease lockdown in England, which has led to renewed optimism in airline stocks. I would like to review the best airline shares to include in my portfolio.
Best airline shares #1
International Airlines Group (LSE: IAG) stock fell about 70% in the past year. In my opinion, most of the investors grew bearish on the company due to the lockdown. With the reopening of all the sectors by June, I expect investor sentiment to change very soon. The company has a stable balance sheet. British Airways was able to finalise two financing agreements recently, providing the much-needed cash for the company’s operations. Pre-Covid-19, the company had a good return on invested capital of 14.7% for the year 2019.
On the other hand, the company’s third-quarter revenue fell by 83% year-over-year to €1.2bn. The operating loss before the exceptional item was €1.3bn compared to an operating profit of €1.4bn for the previous year. I expect the results to normalise only in the second half of 2021. The company has deferred its pension payments, which will reduce the company’s profits in the future.
Best airline shares #2
EasyJet (LSE: EZJ) stock fell around 40% in the past year. The company is working on reducing costs which is positive. It has also maintained its investment-grade balance sheet. It further secured liquidity through a new £1.4bn loan facility. There is more positive news as the research conducted by the company among 5,000 European consumers between 8 January and 20 January showed that 65% have or plan to make a travel booking in 2021. Among the existing easyJet customers, the percentage was even higher, with around 75% planning a trip this year.
Revenue in the first quarter of fiscal year 2021 fell by 88% year-over-year to £165m. Passenger numbers also decreased by 87% year-over-year to 2.9m. If the number of Covid-19 cases rises again, it might take a longer time for the full operations of flights to return. There were leaked reports last year that if the business does not return to normal in summer, then easyJet pilots will have no job as the company was in a really dire situation.
Best airline shares #3
Ryanair Holdings (LSE: RYA) stock rose around 10% in the past year. In December, Ryanair increased its order for the Boeing 737-MAX. In my opinion, this shows the company is optimistic about better opportunities in 2021. According to management, Boeing 737-MAX aircraft have 4% more seats but burn 16% less fuel and lower emissions by 40%. This should help the company to reduce operating expenses. The company also has a strong balance sheet as it had cash of €3.5bn at the end of 31 December 2020.
Revenue in the third quarter of the fiscal year 2021 fell by 82% year-over-year to €0.34bn. It reported a loss of €306m compared to a profit of €88m for the same period last year. The management also expects lower traffic in the fourth quarter of the fiscal year 2021 due to the lockdown and travel bans. It believes that the fiscal year 2021 to be the most challenging year in Ryanair’s 35-year history. Lastly, another important risk to consider is that it will have restricted voting rights for non-European Union shareholders from 1 January.
Royston Roche 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.