Interactive Investor

Soaring airline stocks lead another stock market rally

5th January 2023 15:31

Graeme Evans from interactive investor

Battered by the pandemic and a cost-of-living crisis, the airline sector is looking cheap, especially after a key player talked up prospects. Here are today’s high-flyers.

A revival for airline stocks picked up speed today after budget carrier Ryanair revealed that profits had been boosted by strong pent-up demand over the holiday season.

Wizz Air Holdings (LSE:WIZZ) benefited the most from the update as the FTSE 250-listed stock jumped by 211p to 2,306p, taking gains since mid-October to more than 65%. Luton-based rival easyJet (LSE:EZJ) is up by a third over the same period, having risen 19.3p to 374p in today’s session.

The momentum came despite a note of caution from Ryanair as it forecast a loss in the current quarter and said there had been recent signs of softening in UK outbound traffic and pricing.

Liberum transport analyst Gerald Khoo said after last night’s unscheduled update: “It is unclear to us how material this softness is. 

“Our assumption is that this is likely to be related to the challenging consumer outlook, perhaps with the recent holiday season representing a final binge of revenge travel ahead of financial belt tightening.” 

For now, however, investors focused on the 25% mid-point upside in Ryanair’s new profit guidance of between 1.32 billion euros and 1.42 billion (£1.17 billion-£1.26 billion) in the year to March. That compares with a previous estimate of between 1 billion euros and 1.2 billion.

The company said: “Strong pent-up travel demand over the holiday season for the first time in three years, with no adverse impact from Covid or the war in Ukraine, stimulated stronger than expected peak Christmas/new year traffic and fares.”

The Dublin-based carrier now sees profit for the Christmas quarter near to 200 million euros (£177.1 million) when it reports figures on 30 January. This compares with Liberum’s forecast of 62 million euros (£54.9 million). 

Khoo has a ‘buy’ recommendation on easyJet, with a target price of 430p, and British Airways owner International Consolidated Airlines Group SA (LSE:IAG). Its shares edged closer to Khoo’s 145p target by rising 3.4p to 138p, but are still well short of pre-pandemic levels above 400p.

He added: “We expect the holiday season strength noted by Ryanair will have been replicated at its peers. The areas of softness also potentially read across to easyJet and IAG, with easyJet proportionately more exposed to the UK market than Ryanair.”

Wizz shares also have some way to go to recover lost ground, having stood above 5,000p in September 2021. Its performance has been impacted by an unfavourable hedge position as well as disruption costs as it ramped up capacity. However, Wizz has since restarted its hedging policy while competitors no longer benefit from the hedge prices secured in 2021.

Earlier this week, the company reported a 58.4% year-on-year jump in passenger numbers to 4.2 million for December. It has also continued to grow its network, including through the launch of new routes from Italy to Saudi Arabia.

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