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.
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.
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:
- Set up a new IG trading account or log in to your existing account
- Locate Ryanair or easyJet shares by entering ‘Ryanair’ or ‘easyJet’ in our search bar
- Set your position size
- Enter ‘buy’ or ‘sell’ in the on-screen deal ticket
- Confirm your trade
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material 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 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. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research 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 and quarterly summary.
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