Why volatility for Europe's big five airlines may increase on Monday

‘The world has changed for airlines,’ said Warren Buffett.

‘The world has changed for airlines,’ said Warren Buffett during Berkshire Hathaway’s latest annual shareholder meeting.

‘I don’t know how it’s changed and I hope it corrects itself in a reasonably prompt way.’

In response to this, Buffett revealed that Berkshire had not merely trimmed, but sold all of its airline holdings. Previously, Buffett’s conglomerate held significant stakes in four key US airlines, including: Delta Air Lines, American Airlines, Southwest Airlines and United Airlines.

‘It turned out I was wrong about that business because of something that was not in any way the fault of four excellent CEOs,’ Buffett noted with typical candour.

The implications and the outlook

Globally, travel and airline stocks have been some of the hardest hit as a result of the coronavirus pandemic. Not only has this brought immediate impact to the airlines – with entire fleets grounded and strict travel restrictions put in place across many countries – but there is little certainty about when things will get back to normal.

Additionally and on a more philosophical level, there are concerns that in a post-coronavirus world, consumer behaviour will be irrevocably changed. Buffett highlighted such a fact, saying:

‘I don’t known if Americans have changed their habits or will change their habits because of the' coronavirus pandemic.

On that same topic, IG Market Analyst Kyle Rodda elaborated that:

‘Despite hopes more broadly that social distancing measures will be eased in parts of Europe and the US, air travel will be one of the last areas of the economy to return to normal operations. At that, it's unclear even when things get back to normal, whether consumers will wish to fly as frequently as they did before the crisis.’

Europe's big five will likely be on watch

In response to Buffett’s revelation – Europe’s big five airlines: Ryanair, easyJet, Deutsche Lufthansa, International Consolidated Airlines Group (IAG) and Air France-KLM – are likely to be closely watched by investors on Monday, 4 May.

Ultimately, it’s been a difficult period for Europe’s big five – with many of their share prices crumbling in the wake of the coronavirus pandemic.

Ryanair, easyJet, Lufthansa share prices in focus

For example, since late February the easyJet share price has collapsed more than 60%, Deutsche Lufthansa has fallen close to 50% since 19 February, while the likes of Ryanair has performed a shade better, falling 'just' 32% in that same period.

Potentially giving some indication of how investors would react when European markets open, when Asian Pacific markets opened this morning, a number of key locally-listed airline stocks were sharply bid lower.

Qantas Airways, Australia's blue-chip carrier saw its share price drop ~3.8% at the open – to A$3.480 per share.

Elsewhere, South Korea’s second-largest airline – Asiana Airlines – also fell sharply, dropping over 8% in the morning session.

China Airlines – the national carrier for the Republic of China, also slumped at the open, with its share price hitting TWD$7.88 (-4.48%), as of 9:19AM (GMT+8).

The share price of Hong Kong's Cathay Pacific Airways also fell when the Hang Seng opened.

Commenting on how investors and traders may respond in the short term, Mr Rodda further pointed out that:

‘Overall, investing in airlines are a risky proposition, and Buffett's words just reaffirmed that; and for that fact, we could see airline stocks trade a little more volatile to start the trading week.’

In general, markets look set for a weak open, with both FTSE and DAX futures trading lower, at the time of writing.

How to trade airline stocks – long and short

What do you make of Buffett’s comments: do you see this as a bullish or a bearish signal? Whatever your opinion, you can trade any of Europe’s big five airlines as well as many other global airline stocks – long or short – through IG’s world-class trading platform now.

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

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