IAG and easyJet shares could soar higher amid hopes of easing travel restrictions

Airline stocks surge on hopes of an easing of travel restrictions, but challenges remain and the industry has a long way to go before returning to pre-crisis levels, with investors remaining cautious.

European airline stocks like British Airways-owner International Consolidated Airlines Group (IAG) and easyJet saw their shares close on a high on Tuesday, after news hit that travel restrictions across Europe could be eased.

Shares in IAG and easyJet closed 22% and 19% respectively, with the two stocks capable of trading higher if summer flights are allowed to go ahead amid the Covid-19 crisis.

IAG and easyJet closed at 233p and 665p per share respectively on Tuesday.

Rocky road ahead for airline industry

Investor sentiment has certainly lifted after news that the industry could soon return to the skies, but it may not last long, with airlines still on the brink of collapse due to the economic fallout from the Covid-19 pandemic.

And even if flights do resume this summer, air travel is unlikely to return to its pre-crisis levels until mid-2021 in a best case scenario.

When airlines do finally get off the ground, many plan to run reduce fleet sizes in accordance with a reduction in flight capacity. But it is important to note that while Covid-19 has put the industry under a lot of pressure, the sector has been struggling for some time.

In fact, the industry has seen margins squeezed significantly prior to the crisis, with airlines putting their respective balance sheets under pressure in an all-out price war which, along with the advent of the pandemic, has brought about the collapse of several carriers already, including FlyBe.

FTSE 100 surges towards key resistance level

The FTSE 100 has been on the rise since Friday's lows, with yesterday's closure for UK and US markets leaving much of the price action to mainland Europe and Asia. Ultimately, we are seeing a bullish surge take hold as traders prepare for a host of reopening measures throughout the world, according to Josh Mahony, senior analyst at IG.

‘The success of those measures may not be known for some weeks, thus allowing for a more optimistic outlook for now,’ Mahony said. ‘For the FTSE 100, the rally takes us closer to the crucial 6211 breakout level, which is the highest point reached within this recovery.’

‘With that in mind, we need to see a break through that level to really point towards a breakout and continuation,’ he added. ‘Until then, a break below the 80 mark on the stochastic could provide a more bearish short-term view.’

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