Ryanair and easyJet shares: is now the time to buy?

As investors continue to scramble for bargain equities, we investigate whether the time is right to go long with the UK’s low-cost airlines.

Britain’s low-cost airlines have been some of the poorest performing stocks since the turn of the new year. With a growing number of planes grounded and minimal revenue due to the coronavirus lockdown, it’s no surprise that investors quickly lost confidence in the airline industry.

But hope abounds that the share price of budget airlines like easyJet and Ryanair have bottomed out. The UK government’s £1 billion lifeline to airlines has given them a cash flow lifeline, permitting operators to delay their air traffic control fees during the lockdown.

Is that enough to breathe new confidence into investors, or is there a way to go until the tide begins to turn?

Flight refund scandal causes airline equities to tumble

This week has been particularly damaging for the Ryanair share price. News filtered through that thousands of passengers have been struggling to obtain cash refunds on cancelled flights, with Ryanair sending travel vouchers instead and prolonging the refund process.

Under EU legislation, Ryanair is legally bound to offer passengers cash refunds within seven days of cancelled flights. However, its customer service team is failing to provide a time frame for refunds to be processed for those unwilling to accept a travel voucher.

As organisations like Money Saving Expert made formal complaints to the Civil Aviation Authority and Trading Standards, the Ryanair share price plummeted this week from a high of €10.28 on Monday to €9.40 shortly before the close of Wednesday’s trading.

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easyJet weighing up empty middle seats once COVID-19 restrictions ease

easyJet, who this week reinstated its online refunds form for passengers, has committed to processing refund claims within 28 days, citing the increased volumes from the pandemic as their reason for failing to meet EU law.

However, the airline already appears to be looking ahead to when travel restrictions ease. Chief executive officer (CEO) Johan Lundgren mooted the prospect of leaving all middle seats vacant when flights resume, with reduced passenger demand making social distancing potentially possible.

Despite its share price falling from as high as £15.52p in February to 475p at the start of this month, there are signs this month that easyJet’s value could be bottoming out. It has successfully negotiated a pause with Airbus for 24 new planes which could have wiped out months of revenues, while its balance sheet contains £1.6 billion of cash. It has also raised £2 billion in additional liquidity via the Bank of England’s (BoE's) COVID corporate financing facility (CCFF) and its credit facility.

Ryanair appear best equipped to thrive post-coronavirus crisis

Despite the furore surrounding Ryanair’s handling of passenger refunds, the company’s financials could make them the best equipped of all the UK’s budget airlines during the pandemic. Ryanair is debt-free, with a vast fleet on the ground. This gives Ryanair strength and confidence when dictating financial terms to key suppliers.

The fact that Ryanair owner Michael O’Leary has rejected the idea of operating flights with empty middle seats as 'idiotic', preferring to leave his planes grounded, proves that the airline’s cash reserves are sufficient enough to stop O’Leary attempting to 'make money on 66% load factors'.

Just hours after O’Leary’s comments, the Ryanair share price opened 1.9% higher from €9.50 within seconds of early trading this morning.

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How to trade easyJet and Ryanair shares

If you’d like to buy (long) or sell (short) the UK’s leading low-cost airlines with IG this week, follow these five easy steps:

  1. Set up a new IG trading account or log in to your existing account
  2. Locate Ryanair or easyJet shares by entering ‘Ryanair’ or ‘easyJet’ in our search bar
  3. Set your position size
  4. Enter ‘buy’ or ‘sell’ in the on-screen deal ticket
  5. Confirm your trade

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The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.

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