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$715m bailout triggers volatility among airline and travel stocks

A number of Australia’s top airline and travel stocks have continued to trade in a volatile fashion, even after the government announced a near-billion dollar bailout package for the airline industry.

Top ASX airline and travel stocks in focus Source: Bloomberg

The big bailout

The Australian Federal government yesterday announced that it would be providing airlines with an economic relief package totalling $715 million.

Centrally, this multi-million dollar relief package will see domestic and regional aviation security charges and air service charges waived and refunded. In addition to that, aviation fuel excises will also be waived and refunded.

The package itself will be back-dated, applying to the above noted charges airlines that have incurred from 1 February. As a consequence of this, around $160 million will be immediately returned to the industry, according to the ABC.

Speaking of this relief package, Michael McCormack, Deputy Prime Minister of Australia said:

‘Our airlines run on tight budgets at the best of times and these past few weeks have been particularly tough. I’ve been speaking with Australian airline executives every day and will continue to work with them to make sure they receive the support they need.’

Commenting more broadly, Mr McCormack further noted that:

‘Providing this assistance not only helps our airlines, but the entire aviation industry, regional Australians in particular and other industries such as tourism and trade, which rely on aviation.’

Qantas, Virgin and Sydney Airport share prices in focus

All up, the response to this bailout was a volatile one amongst investors and traders.

The blue-chip airline Qantas for example, was one of the worst hit, with its share price falling as much as 20%, to an intraday low of $2.27 per share. And even though the stock recovered some of those losses as the session wore on, by the close the airline was still in the red, and now has lost near 60% of its market value in the last month.

Secondly, and speaking to the volatility of the current situation, Virgin Australia, another key Australian airline, actually saw its share price rise today, with its stock bouncing 6.35% by the close.

Like Qantas however, the broader picture remains a dour one: in the last month the Virgin Australia share price is down close to 50%.

Commenting on this price action, IG Market Analyst, Kyle Rodda pointed out that prior to the announcement of today’s government stimulus package, the market was concerned that the Virgin was at risk of default. This bailout, for the time being, protects the low-cost carrier from such an outcome; or at the very least, delays its occurrence.

More generally, travel-related stocks continued to fall today: Flight Centre dropped a further 3.22%, while Webjet collapsed an astonishing 12.18%. At least Sydney Airport’s stock proved resilient, rising 6.77% and finishing out the day at $5.05 per share.

How to trade ASX airline and travel stocks

What do you make of the Australian Government’s stimulus package plan: will it be good or bad for ASX airline and travel stocks? Trade accordingly. You can use CFDs to trade any of the stocks we have discussed today – LONG or SHORT – through IG’s world-class trading platform now.

For example, to buy (long) or sell (short) Virgin Australia using CFDs, follow these easy steps:

  • Create an IG Trading Account or log in to your existing account
  • Enter ‘Virgin Australia’ ‘VAH’ in the search bar and select it
  • Choose your position size
  • Click on ‘buy’ or ‘sell’ in the deal ticket
  • Confirm the trade

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.

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