Will IAG, easyJet and Ryanair shares keep climbing?

Airline stocks like International Consolidated Airlines Group (IAG), easyJet and Ryanair have all rallied more than 18% in August, with the trio benefitting from a strong recovery in short-haul flights and have adjusted operations to accommodate passengers amid the Covid-19 pandemic.

But with European governments considering travel bans and quarantines to stop a resurgence in coronavirus cases, the airline industry remains in a precarious position. But will the three airlines share prices keep climbing or will headwinds prove too much for the sector?

IAG downgraded by Davy ahead of €2.75bn rights issue

Despite IAG shares climbing more than 32% in August, analysts at Davy cut their rating for the stock to ‘neutral’ and issued a target price of 200p per share, implying a potential downside of 8%.

In a note to clients, Davy analysts Stephen Furlong and Ross Harvey said that IAG’s upcoming rights issue, which is expected to take place in September, will likely dilute shareholders by at least 50% in exchange of the €2.75 billion the company seeks.

‘We… downgrade IAG to 'neutral' with its highly dilutive rights issue to come in September,’ Furlong and Harvey wrote.

‘The pertinent question for the network airlines, which transfer passengers through large hubs connecting long-haul destinations, is whether they can recover and, if so, how long will this take.’

The path ahead remains challenging for the British Airways owner, with company admitting it will take at least four years to return to pre-crisis passenger levels.

IAG is forecast to record a €2.9 billion operating loss in 2020. The airline group’s outlook in the years ahead is promising, however, with it expecting to generate €620 million profit in 2021, with that figure rising to €2 billion in 2022 and €2.7 billion in 2023.

IAG is trading at 219p per share at the time of publication, with the stock down 65% year-to-date.

easyJet sees summer short-haul flights increase, lifting shares

easyJet’s Q3 performance earlier this month was in line with expectations, with the airline ending the period with a re-start to flying.

However, based on current travel restrictions, easyJet expects to fly around 40% of its planned capacity for the fourth quarter (Q4) 2020, with the airline forecast to record a smaller loss in Q4 than in Q3, however.

The low-cost airline raised its Q4 schedule to 40% capacity, up from its previous guidance of 30%, with the company’s return to the skies helping to lift its share price 32% in August.

If easyJet is able to meet its capacity targets for Q4, the stock could break through key resistance levels. But if Covid-19 cases surge and governments are forced to impose further travel restrictions, airline stocks will likely slump.

‘Returning to the skies again allows us to do what we do best and take our customers on much-needed holidays,’ easyJet CEO Johan Lundgren said.

‘Our bookings for the remainder of the summer are performing better than expected and as a result we have decided to expand our schedule over the fourth quarter to fly c.40% of capacity,’ he added.

‘This increased flying will allow us to connect even more customers to family or friends and to take the breaks they have worked hard for.’

easyJet is trading at 651p per share at the time of publication, with the stock down 54% year-to-date.

Ryanair shares break through key resistance level

Ryanair revealed the scale of the hit it took over the last three months, with traffic down and passenger numbers a fraction of what they were this time last year.

But the low-cost airline still saw its share price surge 20% in August after Ryanair said that passenger numbers are improving and hopes to increase the number of flights available sooner than expected.

The news helped Ryanair break above €12 resistance suggesting a more bullish outlook for the stock, with the share price on course to challenge €13 and its June peak.

‘With momentum indicators such as stochastics and MACD also either holding steady or rising, we may be about to see a recovery for the shares. A break below €10 negates this bullish view, Chris Beauchamp, chief market analyst at IG said.

Ryanair is trading at €12.63 per share at the time of publication, with the stock down 15% year-to-date.

How to trade airline stocks with IG

Looking to trade IAG, easyJet, Ryanair and other airline stocks? Open a live or demo account with IG and buy (long) or sell (short) shares using derivatives like CFDs in a few easy steps:

1. Create an IG trading account or log in to your existing account
2. Enter ‘easyJet’ in the search bar and select it
3. Choose your position size
4. Click on ‘buy’ or ‘sell’ in the deal ticket
5. Confirm the trade