How long will the airline crisis last?



By Chris Illing


COVID has hit the aviation industry hard. but with vaccinations progressing, airlines are optimistic and hoping for a quick recovery. That could be premature.

If you look at the shares of the airlines, you could almost believe the crisis will soon be over. United Airlines shares have risen by around 50 percent in the last few weeks and are now back at more than $47. Ryanair shares have doubled in value since March 2020. Does this mean that the aviation companies will soon have left the COVD crisis behind them?

At least the industry is trying to spread optimism. Aviation managers repeatedly emphasise that the crisis could be completely overcome by 2022 at the latest. With the vaccine being rolled out worldwide more air travel would be possible again very soon.

Prospects like this make airline board members rejoice: Lufthansa boss Carsten Spohr assumes his company will be able to achieve an average of half the passenger level of 2019 in 2021. Initially still lower, but “for the summer and autumn we calculate with up to 70 percent”.

Is the near future really so rosy, or is that more of a rumour because the industry managers are afraid of a further uncertain future? The airline organization IATA has calculated airlines will lost almost $100 billion worldwide in 2020. Almost $40 billion losses are to be added in 2021. But how are these sums supposed to be repaid if the airlines cannot yet say how they can earn money again?

The example of Lufthansa shows how difficult it is to be in the black again. The group had to drastically reduce personnel costs, around 29,000 jobs have been cut worldwide, short-time work and crisis agreements are intended to help contain the losses. At least 150 aircrafts from the Group’s fleet of 760 jets will no longer take off on a permanent basis. Instead, kerosene-saving jets are to be leased in the future. Even with this measure does not earn any money in the short term.

And rising passenger numbers do not automatically make the airlines a “cash cow”. Because it is certain the number of business travellers - who previously travelled first-class or business - will decline very sharply. That would put an extreme strain on the industry.

The up-and-down is reflected in the companies share price. The all-time high for Lufthansa was in 2017 at almost 32 Euros before collapsing at the beginning of the pandemic to below seven Euros. Presently it is trading near 8.50 Euros.

A little apart from the airlines, but also decisively involved in and dependent on the market, are the aircraft manufacturers. Names like Boeing, Airbus or Bombardier are the big players in the market. But how are they affected by the corona crisis? Is it worth investing in the shares of aircraft manufacturers now?

Boeing shares fell sharply at the beginning of the Corona crisis and the lockdown that went with it. The price has been on the up again since the beginning of November. While the stock hit an all-time high of $ 446 on March 1, 2019, the value about a year later was at $ 89. In June 2020, it increased to $230. After that, the price collapsed to $144. Positive news on vaccine developments helped the stocks to rise. At the moment the Boeing share price is $220 US dollars.

Airbus recorded an average loss of EUR 3.50 per day during the crisis and fell to EUR 48.08 in April 2020. For comparison the low in 2019 was 78.93 euros. Currently (as of 09/2021) the share has risen to a value of 118.00 Euros but is still far from the all-time high of 139.40 Euros reached on January 24, 2020.

For patient investors, now is the right time to invest in the long term. Before the Corona crisis, the International Air Transport Association (IATA) assumed that air traffic would double in the next two decades.

Chances are that this trend will continue after the pandemic, even if the schedule shifts. In the tourist sector in particular, holidaymakers may want to make up for missed vacations far away. People who have had to isolate themselves at home for a long time could then travel more often.

To do this, however, a feeling of security must first reappear. Investors can probably only count on an easing of the situation, which is comparable to the times before the crisis, only in 2024 to 2025 at the earliest. In any case, an investment entry is tempting now.


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