Airline stocks were hit hard in 2020 with the onset of the Covid-19 pandemic. As flights ground to a halt, companies found themselves with no customers while still having to shell out millions each month in maintenance costs. The result of this was negative cash flows, growing debts, and crashing stock prices.

However, fast forward to 2022, and much of the lost flying time has been recouped. As people are free to travel again, I would expect airline stocks to be slowly climbing. Yet this hasn’t been the case. easyJet (LSE: EZJ), IAG (LSE: IAG), and Ryanair (NASDAQ: RYAA.Y) are down 40%, 33%, and 32% year to date respectively. Over a one-year span, the same stocks are down 49%, 35%, and 33%. So that being said, is now the time to buy back in?

Ready for take-off?

A big positive for airline stocks is the continuing increase in footfall. In 2019, just under 5bn people boarded flights. In 2020, this number fell all the way down to 1.8bn. However, in 2022, it’s forecast that just under 3.5bn customers will board flights, highlighting the impressive recovery. As this figure increases, it will help boost firms’ top lines, which I expect to be reflected in share prices.

Looking at company-specific results, I also see good news. IAG reported a profit for the three months to June 30 for the first time in two years. Ryanair posted a profit of £170m in its Q1 FY23 results too. Although easyJet recorded a loss of £110m for the same period, its revenues soared to £1.7bn, up from just £213m a year prior. In addition to this, its net debts shrank to just £200m, down from £600m in March 2022. These figures suggest to me the airline industry is in a more comfortable spot.

Not out of the woods yet

But there remain risks. A big threat that could continue to plague airlines is rising fuel costs. The Russia-Ukraine crisis sent the price of oil skyrocketing to over $120 per barrel. Currently sitting around the $100 mark, the price of jet fuel will inevitably have skyrocketed too, increasing operating costs and eating away at margins.

Another risk that airlines must overcome is rising inflation and how this is impacting workers’ wages. We’ve already been seeing union action regarding the erosion of pay in other travel industries. easyJet, Ryanair, and British Airways have all seen strikes this summer, and there’s no guarantee that these won’t continue.

Rising interest rates are also creating a harsh environment for stocks to thrive. I expect this bearish sentiment to be another reason why airline stocks have fallen.

Flying under the radar

Yet I think that airline stocks are back on the up. Shares have fallen due to rising fuel costs, the threat of industrial action, and the wider macroeconomy. However, with flight numbers rising, and industry leaders returning to profitability, I think now could be time to buy back in. As such, I’m looking at buying some UK airline stocks for my portfolio today.

The post Airline stocks: is now the time to buy back in? appeared first on The Twelfth Magpie.

More reading

• Could now be the time to buy great UK shares at bargain prices?
• easyJet shares are up 40% in a month. Here’s why
• Up 47% in a year! Now see what the booming IAG share price could be worth in 12 months
• Up close to 50% in a month, what’s next for the easyJet share price?
• The easyJet share price is up 49% in a month. What on earth’s going on?

Dylan Hood 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.

Since I last wrote about British Airways owner IAG (LSE: IAG), the share price has seen an 11% recovery. After a generally positive set of H1 results, I could be tempted into buying the shares in order to capitalise on the potential upside.

IAG shows promise

IAG followed through on its Q1 guidance of achieving profitability in the second quarter. Q2 was, in fact, the group’s first profitable quarter since the start of the pandemic, with an adjusted earnings per share (EPS) of 2.5c.

It was also pleasing to see revenue per available seat kilometres (ASK) and passenger numbers edge closer to pre-pandemic levels. Aside from that, IAG managed to improve its financial position slightly, reducing its debt by €688m, while receiving positive free cash flow.

Therefore, the view of achieving operating profitability by the end of the year is starting to become a realistic possibility. All signs are pointing towards an increasingly promising rest of the year for the FTSE 100 firm.

Striking deals

Apart from the much improved financial performance of the company, IAG also managed to quash fears of future strikes. The company managed to strike a deal with 16,000 workers for a 13% pay rise this year. This should alleviate fears of last-minute flight cancellations, at least for the time being.

Nonetheless, not all is as smooth cruising as it may seem. This is because Heathrow Airport has opted to extend its cap on passenger numbers until the end of October, with no more than 100,000 travellers per day, leading to cancellations of tens of thousands of flights. As Heathrow is the hub of IAG’s most profitable airline, I’m expecting this to impact H2 results.

As a result, CEO Luis Gallego revised the company’s outlook downwards. IAG now expects capacity to hit 78% of 2019 levels, as compared to the previous 80% that IAG had expected. From this, North Atlantic capacity (IAG’s most profitable routes) is now expected to hit 92% of 2019 levels in Q3, compared to the previous guidance of 95%.

Having reservations

While the future outlook for IAG still remains rather promising, I have my reservations regarding its potential upside. Although passenger demand still remains strong, I’m fearful that it’s only a matter of time before sky-high inflation, and a potential recession on the cards, starts hitting consumers harder.

Furthermore, IAG’s long-haul recovery continues to lag that of shorter trips. The continued travel restrictions in large parts of Asia, specifically China, is hindering its growth potential. And with China sticking to its zero-Covid policy, this avenue doesn’t look likely to recover any time soon. Business travel also still continues to lag, only hitting 60% of its pre-pandemic volume. Moreover, as the winter months approach, I’m expecting the number of holiday travellers to start winding down.

Even though IAG shares have the potential to grow plenty, my optimism is hindered by a cloudy economic environment. Overall costs still remain high and, most importantly, the company still has a mountain of debt to pay off, which is expected to increase going into the year end. For that reason, I won’t be investing in IAG shares.

The post Should I be buying IAG shares today? appeared first on The Twelfth Magpie.

More reading

• Up 47% in a year! Now see what the booming IAG share price could be worth in 12 months
• 2 cheap FTSE 100 stocks that have P/E ratios below 10
• What might Middle Eastern peace mean for the IAG share price?
• Up 119% but with a P/E of just 6.6% – what’s going on with the IAG share price?
• 3 UK stocks to consider snapping up if the stock market crashes this month

John Choong 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.

The decline won’t seem to stop for IAG (LSE: IAG) shares. With the share price sliding to a one-year low, I might be tempted to see it as a buying opportunity. Nonetheless, given the state of its finances, I know it would be a high-risk, high-reward investment.

Terminal situation

IAG shares aren’t just trading at its one-year low. It’s also close to its five-year low of £0.91. What started off as a baggage system error last month has now evolved into something much worse. This is because staff shortages at airports have led to massive travel disruptions for British Airways, the biggest airline at IAG.

The airline had initially cancelled 650 flights in July, impacting over a 100,000 passengers. But to make matters worse, Britain’s biggest airline said today that another 10,3000 short-haul flights will be axed until the end of October. This is in part due to British Airways staff striking during the busiest period for the airline. Most of its check-in staff had received a 10% pay cut during the pandemic, but are yet to get their compensation fully reinstated.

This isn’t good news for IAG as it gets squeezed from both sides. Mass flight cancellations could result in the group falling short of its top line guidance. On the other hand, bigger paycheques to check-in staff will squeeze its bottom line even further.

The easy way out?

Sky-high inflation is starting take a toll on consumers’ wallets. Additionally, the Bank of England expects inflation to peak at 11% later this year. As such, consumers’ discretionary spending is expected to decline. Given that fares from airlines at IAG don’t exactly scream bargain, customers are more likely to turn towards budget airlines such as easyJet and Wizz Air. While its competitors also face a similar number of cancellations, they offer cheaper fares on average. This brings better value proposition to customers.

Delays expected for IAG

When IAG unveiled its Q1 results, it mentioned its aspirations to achieve operating profitability by Q2. However, given the current state of affairs, I view this to be highly unlikely. And even if it does manage to achieve such a feat, I don’t expect it to last for the rest of the year. Therefore, I anticipate delays on its route back to profitability.

More worryingly though, IAG has a mountain of debt (€19.6bn) to deal with. It doesn’t help either when its debt isn’t covered by its current operating cash flow nor its cash and equivalents (€7.9bn). If the FTSE 100 firm can’t deliver on its repayments, it’ll have to risk refinancing its debt, making repayments more expensive. This will likely sour investor sentiment further.

IAG shares are a in precarious position at the moment. There doesn’t seem to be light at the end of the tunnel and its balance sheet is in tatters. Moreover, its share price seems to be only going in one direction for the time being. Nevertheless, a report from Bloomberg stated that British Airways is nearing a deal with unions, which could mitigate staffing shortages and turn the airline’s fortunes around. That being said, I still won’t be buying IAG shares for my portfolio as I view it as too high of a risk. Instead, I’ll be investing in other companies that have better fundamentals.

The post Should I buy IAG shares if the price drops below £1? appeared first on The Twelfth Magpie.

More reading

• Up 47% in a year! Now see what the booming IAG share price could be worth in 12 months
• 2 cheap FTSE 100 stocks that have P/E ratios below 10
• What might Middle Eastern peace mean for the IAG share price?
• Up 119% but with a P/E of just 6.6% – what’s going on with the IAG share price?
• 3 UK stocks to consider snapping up if the stock market crashes this month

John Choong 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.

International Consolidated Airlines Group (LSE: IAG) shares are currently trading at £1.15, and are down 25% this year. Given the current economic landscape, its stock could be in further trouble, and here’s why.

Excess baggage

From Covid, to inflation, and now airport disruptions, the travel industry can’t seem to catch a break, and this week has been one of the more disruptive ones. Staff shortages, technical difficulties, and rail strikes have served up a perfect dish of chaos for IAG.

On Monday, Heathrow Airport suffered a widespread problem with its baggage system. As a result, Heathrow requested airlines to cancel 10% of their flights from Terminals 2 and 3. Although IAG’s main hub is located at Terminal 5, this still affected the limited number of IAG services at T2 and T3.

To make matters worse, Gatwick Airport capped its daily operations to 825 flights a day in July, and 850 flights a day in August, due to staff shortages. This has led to delays and flight cancellations, with easyJet suffering the brunt of it. Nevertheless, I doubt IAG is spared from this as I’m expecting a number of its services to be impacted as well.

Three strikes and you’re out

Three weeks ago, British Airways check-in staff threatened to strike in July. This is because their pay has yet to return to pre-pandemic levels after salary cuts made during the pandemic. With the deadline fast approaching on 27 June, IAG is stuck between a rock and a hard place.

For one, the board could reinstate workers’ pay, but doing so would impact its already fine margins. To mitigate this, British Airways would have to increase its ticket prices, which might dampen demand and extend its route back to profitability.

On the other hand, not doing anything could be equally devastating. A lack of check-in staff might lead to further delays and cancellations, which wouldn’t be good for IAG shares. Seeing that British Airways is the group’s biggest revenue driver, a strike could impact IAG’s top line quite substantially.

Delayed departure

In its last trading update, IAG mentioned that it expects to achieve operating profitability by Q2. However, this seems to be increasingly unlikely. Apart from potentially having to fork out higher wages or lose millions in revenue, the FTSE 100 firm still has to deal with high oil prices.

Since its Q1 update, jet fuel prices have hit fresh new highs of $175 per barrel, which isn’t going to do its bottom line any favours. Additionally, the Consumer Price Index in May continued to hit 40-year highs at 9.1%. With fears of an impending recession, this is most likely going to dissipate the travel tailwind and send IAG shares even lower.

More importantly, IAG’s balance sheet is in a terrible state. Its debt-to-equity ratio sits at a staggering 2,318%, while its short-term assets can’t cover its short-term liabilities. Not to mention, its last reported free cash flow sits at -€885m. This rings alarm bells of a company that’s in big trouble. Therefore, I won’t be investing in IAG shares. Instead, I’ll be parking my money in other growth stocks that have better financials.

The post Could IAG shares be in further trouble? appeared first on The Twelfth Magpie.

More reading

• Up 47% in a year! Now see what the booming IAG share price could be worth in 12 months
• 2 cheap FTSE 100 stocks that have P/E ratios below 10
• What might Middle Eastern peace mean for the IAG share price?
• Up 119% but with a P/E of just 6.6% – what’s going on with the IAG share price?
• 3 UK stocks to consider snapping up if the stock market crashes this month

John Choong has no position in any of the shares mentioned at the time of writing. 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.

As the travel industry makes a comeback, I would’ve expected airline stocks to take off. So, it’s odd to see easyJet (LSE: EZJ) shares doing so poorly, as it’s down 30% this year. So, here’s why the easyJet share price is crashing.

A dissipating tailwind

On Monday, easyJet released its summer trading update. The good news was that, “Demand for travel has returned“, according to CEO Johan Lundgren. Passenger occupancy for the months of April and May was seven times higher than last year, with expectations for capacity to reach 87% of pre-pandemic levels this quarter. Unfortunately, that’s where the good news ends.

Despite the upbeat tone, investors punished easyJet stock as management lowered its initial guidance. Although 87% capacity of 2019 levels is still high, this is lower than the 90% initially guided. The firm’s outlook for Q4 also saw a decline to 90% of 2019 levels. Additionally, higher operating costs soured investor sentiment even further.

Not so easy

Pent up demand and the lack of airport staff have led to chaos at British airports. Gatwick Airport, easyJet’s base, has announced daily flight caps as a result. This is part of the reason why the FTSE 250 firm has had to lower its guidance, as growth in passenger numbers hit a ceiling.

Gatwick Airport normally operates 900 flights a day in August. But it’s capped its daily operations to 825 flights a day in July, and 850 flights a day in August for this year due to staff shortages. This has led to delays and flight cancellations.

Many analysts are predicting that these delays and cancellations could cost easyJet up to £200m. Nonetheless, management believes that its high frequency network allows for most passengers to be rebooked onto flights within the same day, thus preventing a big loss in revenue.

Turbulence or engine failure?

Whether this chaos will have a devastating impact on the company’s top line will be revealed in its next trading update. What I do know, however, is that the board is bullish about the airline’s long-term growth. It recently announced a mammoth order for 56 Airbus A320neo aircraft, and converted its initial order of 18 A320neos to the bigger A321neos. These aircraft are more fuel efficient and provide bigger capacity. As such, I’m expecting the Gatwick-based firm to reduce its operating expenses in the long term, and reverse its declining profit margins.

That being said, I’m worried about the easyJet share price in the short-term. High fuel costs and rising interest rates present heavy economic headwinds, with analysts bracing for a potential recession. This would undoubtedly impact sales figures.

Fortunately for the firm, it’s got sufficient cash (£3.5bn) to covers its debt (£3.1bn). However, it goes without saying that its debt-to-equity ratio is still disproportionately high, at 126.4%. On that account, another couple of bad quarters may hinder the budget airline’s return towards profitability.

Nevertheless, easyJet’s business model isn’t my cup of tea. Its history of low-quality earnings paired with high levels of uncertainty makes it a risky investment for me, hence why I won’t be investing in easyJet shares. Instead, I’ll be investing in other growth stocks that have better profit margins.

The post Here’s why the easyJet share price is crashing appeared first on The Twelfth Magpie.

More reading

• Could now be the time to buy great UK shares at bargain prices?
• easyJet shares are up 40% in a month. Here’s why
• Up close to 50% in a month, what’s next for the easyJet share price?
• The easyJet share price is up 49% in a month. What on earth’s going on?
• At £5, could the easyJet share price still be a long-term bargain?

John Choong has no position in any of the shares mentioned at the time of writing. 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.

In 2022 the trend has been similar: year to date the shares are down 12%. However, with global travel restrictions easing by the day, does this mark the perfect time to get my hands on some cheap IAG shares? Or should I steer clear of the UK airline? Let’s take a look.

Headwinds for the IAG share price

Just as pandemic-related travel restrictions seem to be easing, war in Europe has begun. Virtually all flights into Russia and Ukraine have been stopped, and hence airlines like IAG have taken a hit.

Another threat that has stemmed from this tragic conflict is the rising price of oil. Just a few months ago, oil prices were sitting around the $80 per barrel mark. Today, that number has exploded to over $110. The rising oil price has led to fuel prices skyrocketing across the world, raising IAG’s costs and placing pressure on its income.

Finally, rising interest rates around the world could be bad news for IAG. As rates rise and economic growth slows, people are less likely to fork out money for luxuries like holidays.

Considering all three of these factors does make me worry over the future of the IAG share price

Reasons to be cheerful

While there are risks, there are also some positives I see for the stock. Firstly, excluding Russia and Ukraine, the world’s travel routes are beginning to open up again. In the first week of 2022, there were 139,422 flights in Europe. This is a near-100% increase from 71,738 during the same week in 2021.

These encouraging figures have filtered into IAG’s results. Its 2021 Q4 passenger capacity figure was at 58% of 2019 levels. While this might not sound great, it marks an impressive rise from the first quarter, which saw just 19% of 2019’s footfall. This translated into an 8.3% rise in year-on-year revenues that totalled €8.4bn. The firm still reported an operating loss of €2.7bn, but the rise in revenues does highlight that IAG is getting back on its feet.

The shares also look cheap to me. IAG currently trades on a price-to-sales (P/S) ratio of just 0.93. Competitors easyJet and Ryanair trade on P/S ratios of 1.79 and 4.3 respectively.

What I would do now

Although travel numbers look encouraging, there’s no guarantee that this will boost the IAG share price. Looking at the concrete facts, the firm is loss-making, oil prices are rising, and the macroeconomic climate is highly volatile. For these reasons, at the current IAG share price, I won’t be adding any of the stock to my portfolio.

The post The IAG share price is falling: is now the time to buy? appeared first on The Twelfth Magpie.

More reading

• Up 47% in a year! Now see what the booming IAG share price could be worth in 12 months
• 2 cheap FTSE 100 stocks that have P/E ratios below 10
• What might Middle Eastern peace mean for the IAG share price?
• Up 119% but with a P/E of just 6.6% – what’s going on with the IAG share price?
• 3 UK stocks to consider snapping up if the stock market crashes this month

Dylan Hood 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.

However, a combination of positive results and easing restrictions has given IAG new wind over the past few months, with the shares up 8.7% year-to-date. Can this trend continue? Let’s take a closer look.

Encouraging travel data

As mentioned, the global easing of travel restrictions over the past few months has vastly increased footfall across the travel sector. For example, in the first week of 2021, there were 71,738 European flights. Fast forward to the first week of 2022, that number almost doubled to 139,438. In addition to this, Skyscanner – an online travel booking agency – said that bookings for return flights to the UK this summer were up almost 400% in January compared to December.

These numbers have already filtered down into IAG’s business. In its latest trading update, it reported a passenger capacity jump from 21.9% to 43.3% of 2019 levels. In addition to this, its cargo transport has also seen a heft capacity rise, to 73.4% of pre-pandemic levels. IAG releases its full-year results on 25 February and if it sees more results like these, then I would expect the share price to increase further.

There is still significant progress to be made, but it seems that IAG is moving in the right direction. What’s more, Australia announced the reopening of its international borders last week. As confidence in the travel sector grows, the IAG share price could continue to climb.

Headwinds for the IAG share price

The most obvious challenge that IAG must contend with is the continuing threat the pandemic poses. Although restrictions are easing, there is still a high possibility that the virus could cause more disruptions throughout the year. If this is the case, it could place a lid on the growth of the IAG share price.

In addition to this, the pandemic left IAG with over €12bn net debt. This was the case across many other airlines, as the costs of maintaining grounded aircraft piled up. With interest rates creeping up, these debts could be quickly magnified unless addressed soon.

A final risk for the IAG share price is the steep competition that the firm faces from other flight providers. For example, competing airline Ryanair recently announced it would be offering big discounts to incentivise customers. This could draw IAG into a price war, which is the last thing it needs while trying to rebuild its business.

The verdict

Overall, the current IAG share price seem seems to me to be in a good place for growth right now. I think investors are realising the impacts of increased footfall, which is helping push the shares up.

However, with pandemic uncertainty and hefty debts on its plate, I’m not comfortable buying the stock just yet. I’m going to wait for the full-year results, and to see how IAG fares over the course of the next few months, before considering adding it to my portfolio.

The post Is the IAG share price about to take off? appeared first on The Twelfth Magpie.

More reading

• Up 47% in a year! Now see what the booming IAG share price could be worth in 12 months
• 2 cheap FTSE 100 stocks that have P/E ratios below 10
• What might Middle Eastern peace mean for the IAG share price?
• Up 119% but with a P/E of just 6.6% – what’s going on with the IAG share price?
• 3 UK stocks to consider snapping up if the stock market crashes this month

Dylan Hood 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.

The IAG (LSE: IAG) share price has had an excellent start to 2022, up 12%, as I type. I think there could be more to come.

IAG share price: ready to fly?

Let’s start with the obvious, namely the gradual removal of Covid-19-related restrictions. The move by Australia to re-open its borders to double-jabbed passengers, for example, is clearly a shot in the arm for the British Airways owner. After all, long-haul flights tend to be more lucrative. And as confidence returns, IAG’s revenue and profits should bounce back.

Another reason to like IAG is that it’s actually a collection of carriers: the aforementioned BA, Iberia, value operators Aer Lingus and Iberia Express, and low-cost LEVEL and Vueling. This diversification allows the company to cater to many/all traveller types, potentially giving it an advantage in the recovery.

A final reason relates to the FTSE 100 stock’s current valuation. Right now, the IAG share price is around 19% up on where it stood one year ago, giving the company a market-cap of £8.8bn. However, at 178p, the stock is also far below the near-500p level hit almost four years ago. From this angle, investors may consider that the company has great rebound potential.

Sure, no stock has the right to move higher and we should be wary of anchoring ourselves to a previous value. However, the recent rotation into value stocks (which IAG arguably is) may continue for a while yet, especially if interest rate rises come thick and fast.

What could possibly go wrong?

Having listed three reasons for being bullish on IAG, we might assume that I’m busy loading up on the stock? Actually, this couldn’t be further from the truth.

The fact is, the airline industry is a notoriously awful place to invest. The sheer amount of money needed to keep planes in the air means that returns on invested capital (a key quality metric) tend to be low, relative to companies in sectors such as consumer goods and software.

To paraphrase fund manager Terry Smith, companies that are able to reinvest profits at a high rate of return for many years tend to be the best stocks to own. The converse is also true.

Another issue is the level of competition any airline faces. While possessing multiple carriers might be in its favour, retaining passengers will still be a challenge for IAG, not to mention a costly exercise. This seems like a good time to mention the company’s significant debt pile.

On top of this, strikes by airline/airport staff, bad weather and terrorist activity all have the potential to impact trading. Naturally, the possibility of another Covid-19 variant lurking in the background can’t be ruled out either. This wouldn’t be such a problem for me if IAG paid a dividend but that probably won’t happen for a good while. 

Better buy

To summarise, I don’t doubt that there’s the potential to make money here. But this is most definitely not a business I’d want to own for years. For a Fool like me, that’s reason enough to avoid the stock. As an investor who adopts a ‘buy right and hold on’ mentality, IAG simply doesn’t tick enough of my boxes.

If I were to buy a travel-related recovery stock today, it would be (more of) this one. 

The post 3 reasons the IAG share price could lift off in 2022 appeared first on The Twelfth Magpie.

More reading

• Up 47% in a year! Now see what the booming IAG share price could be worth in 12 months
• 2 cheap FTSE 100 stocks that have P/E ratios below 10
• What might Middle Eastern peace mean for the IAG share price?
• Up 119% but with a P/E of just 6.6% – what’s going on with the IAG share price?
• 3 UK stocks to consider snapping up if the stock market crashes this month

Paul Summers 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.

Rolls-Royce (LSE: RR) shares were devastated by the pandemic, falling drastically from their pre-Covid level. However, in the last quarter, momentum seemed to have picked up for the firm, with the shares climbing to 144p during October.

This momentum quickly ended, however, with the announcement of the Omicron variant. The shares have slumped over 12% in the past 30 days as a consequence. Does this present me with a buying opportunity? Let’s take a closer look.

Rolls-Royce share price outlook

Rolls makes the majority of its money from servicing jet engines. As such, the constant travel bans have plagued share price growth. While things seemed to be easing, the Omicron variant has led to a resurgence in coronavirus regulations. Many long-haul flight routes have virtually halted. The bad news was felt across the travel industry, with IAG and EasyJet both seeing double-digit share price drops after the news broke. In addition to this, many analysts don’t expect the aviation industry to fully recover until 2024. If this is the case, it could place a lid on the future growth of Rolls-Royce shares.

However, the Omicron variant has also boosted government responses to the coronavirus. For example, in the UK Covid-19 booster jabs are now being rolled out at a much faster rate to combat the variant. With more and more of the UK population vaccinated, it’s likely that travel numbers will ultimately increase. This could help keep Rolls-Royce shares afloat.

I think the 2022 summer season could prove pivotal for the travel industry. If the sector can enjoy high capacity, then consumer sentiment may be restored. This could lead to more abundant travel throughout the latter half of 2022, speeding up recovery for the sector. This would be great news for Rolls-Royce shares. However, it’s contingent on governments tackling the virus effectively.

Economic problems

One thing that worries me about Rolls-Royce is the firm’s capital structure. It currently has over £4bn of debt on its balance sheet, largely from pandemic-linked loans to keep the firm afloat. The reason this worries me is tied to the direction of the UK economy. Inflation has been steadily creeping up of late, with UK consumer price inflation (CPI) hitting 3.8% over the past 12 months. This is almost double the UK’s target of 2%. Due to these high increases, many investors are expecting an increase in interest rates. If this occurred, it would add to Rolls’ debts.

In just over a week, Rolls will release a trading update. I think this will prove pivotal for the direction of Rolls-Royce shares. In addition to this, it will show investors if the recent addition of Anita Frew as a non-executive director might be making an impact. Frew has chaired multinational chemicals company Croda International for the last five years, delivering huge success. If the report contains some good results, I’d hope that Frew’s impact on Rolls’ management could lead to some great longer-term growth for the firm.

Overall, although Rolls-Royce shares do look cheap to me, I’m not confident enough to buy just yet. I’ll be waiting eagerly to see the firm’s trading update before I consider adding the stock to my portfolio.

The post Should I add Rolls-Royce shares to my portfolio today? appeared first on The Twelfth Magpie.

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Dylan Hood has no postition 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.

Massive loss

To be frank, today’s numbers are redundant beyond serving as a reminder of just how bad things have been for the budget airline. Unfortunately, the Covid-19 pandemic is just so fast-moving that there’s scant guidance for investors like me as to whether the shares might be a buy now.

As one might expect, easyJet was keen to emphasise what it had done to mitigate the damage wrought by Covid-19. This included reallocating aircraft to “higher contributing bases” and instigating cost savings where it could. Even so, total revenue more than halved to £1.46bn over the 12 months to the end of September. The only slight consolation here is that the £3bn of revenue seen in the previous year was boosted by a first-half being unaffected by the pandemic. So, a significant reduction was always on the cards.

Naturally, easyJet’s bottom line wasn’t in great shape either. A headline pre-tax loss of almost £1.14bn was worse than the £835m loss endured last year. That’s despite a 33% reduction in costs. Notwithstanding this, it was ahead of consensus expectations. This may be one reason why the easyJet share price hasn’t dropped like a stone today. Another is the (fairly) upbeat tone with regard to the outlook for FY22.

Recovering demand

This morning, CEO Johan Lundgren said that the steps taken by the company over the past year, coupled with a strong balance sheet “provide easyJet with renewed strength to manage any further Covid-related travel disruptions”. He went on to say that the budget airline had witnessed “an encouraging start” to the new financial year. Demand for flights over the peak winter holiday period was recovering with capacity predicted to be around 70% of 2019 levels in Q2. The Luton-based business expects this to be “close to FY’19 levels” by next summer.

As encouraging as all this sounds, there’s no shortage of reasons for me to be cautious. As the company itself reflected today, it’s far too soon for anyone to know just how much of an impact the new Omicron variant will have on travel. Only this morning, Moderna CEO Stephane Bancel suggested that current vaccines would not be a match for the new variant and that it would take months to get one ready that is.

Put simply, easyJet can do everything right and still struggle. This helps explain why the share price has tumbled 27% over the last 12 months. It’s also why I suspect that asking for it to recover before the end of 2021 may be asking too much. 

easyJet share price: too much risk?

I don’t doubt that demand for easyJet stock will fly at some point as the economy rebounds and demand for holidays inevitably rockets. The question is whether it’s worth the not-insignificant amount of hand-wringing that’s likely to precede it.  

For my part, I’m staying on the sidelines. Taking a contrarian stance now might result in great returns in time, but I think there are far less nerve-wracking ways of making money in the markets.

The post Can the easyJet (EZJ) share price end 2021 on a high? appeared first on The Twelfth Magpie.

More reading

• Could now be the time to buy great UK shares at bargain prices?
• easyJet shares are up 40% in a month. Here’s why
• Up close to 50% in a month, what’s next for the easyJet share price?
• The easyJet share price is up 49% in a month. What on earth’s going on?
• At £5, could the easyJet share price still be a long-term bargain?

Paul Summers 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.