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Planes take the strain over fears about soaring infections in Europe affecting bookings

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Planes take the strain over fears about soaring infections in Europe affecting bookings

Sussanah Streeter
  • IAG down 2.9%
  • Ryanair down 2.7%
  • Easyjet down 3%
  • Wizz Air down 2%
  • Rolls Royce down 2.1%

Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown.

‘’The dip in early trading among airline stocks has intensified with British Airways owner IAG, Easyjet, Ryanair and Wizz Air nose-diving as fears about soaring infections in Europe take hold. Rolls Royce was also dragged lower as it is highly sensitive to the fortunes of the airline industry, given that its core business of making and servicing engines for long-haul aircraft is based on the number of hours its engines are in the air.

Their descent comes amid warnings from the World Health Organisation that there could be an additional 700 thousand new deaths in the region, taking the total to 2.2 million by March. This has caused fresh turbulence for airline companies, which had glimpsed light through the clouds as bookings, especially on lucrative transatlantic routes were expected to bounce back in the Spring. But there are now concerns that surging infections and lockdowns will depress the confidence of the travelling public. Ryanair boss Michael O’Leary has warned of a fraught period, with passengers deterred by this dramatic wave of infections from making bookings. Adding to the fragility are warnings from a parliamentary committee that new swathes of red tape could tie up journeys from the UK to Europe next year due to new border management systems coming into force.

Fortunes haven’t been helped by the oil price staying stubbornly high, with the benchmark Brent Crude above $82 a barrel, despite the co-ordinated release led by the US of strategic oil reserves. There are worries that the oil cartel OPEC and its allies might hold off plans to increase production which is keeping prices higher. The upwards path of the oil price is a particular concern for the airline sector given that fuel makes up 25 – 30% of the operating costs of an airline.  Although hedging may give some airlines breathing space for now, it’s still an ongoing worry. WizzAir which is unhedged on fuel has already said it’s expecting particular turbulence through the winter months as it navigates much higher costs and a substantial operating loss for the third quarter is forecast. There were high hopes that brighter skies would emerge by the Spring but now storm clouds appear to be gathering over the sector once again.’’

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