Investing in airlines: Is the sky the limit?

Karl 9th Aug 2023 No Comments

Reading Time: 4 minutes

Ryanair, easyJet, Wizz Air, and British Airways…. what do they all have in common?

That’s right! All have seen their share prices take off in 2023.

So, can we expect the airline industry to continue flying high, or is turbulence more likely to be on the in-flight menu?

In this article, we’re going to explore the recent performance of airlines, and explain how you can invest in the sector. Keep reading for all the details or click on a link below to fly straight to a specific section…

How have airline stocks performed recently?

The economic devastation caused by lockdowns and travel restrictions during the Covid pandemic led to many big-name shares falling by a third or more. For some airlines, it was much worse. It’s believed 64 airlines went bust during the period, including British-based Flybe.

Since 2020, it’s fair to say it’s been a rather mixed bag for the industry. In 2021, a handful of airlines enjoyed a mini-resurgence, in line with the growing appetite from international travel following a year of on-and-off lockdowns.

Yet it was a different story in 2022 which, in fairness to the industry, was a challenging year for the markets in general.

Data from FlightGlobal reports Air France-KLM was the biggest faller in 2022. The Amsterdam-based airline suffered a colossal 68% fall in 2022, closely followed by Wizz Air, which fell 55%. Meanwhile, easyJet (-42%), Ryanair (-19%) and IAG, owner of British Airways (-13%), all had a year to forget.

But what about the current year?

Well, so far at least, 2023 has turned out to be a decent year for the airline industry in general, with Ryanair, Wizz Air, EasyJet, and IAG, all enjoying a big turnaround in fortunes.

Let’s take a closer look at the these airlines, and their respective share price performance in 2023…

Ryanair – up 24%

Believe it or not, Ryanair is the largest airline in the world by passenger numbers, outside of the US. The budget airline, famous for its cost-cutting ‘tricks’, expects to enjoy 10% traffic growth in 2023.

The Irish carrier has seen its share price rise by a cool 24% since the turn of the year.

easyJet – up 37%

Founded in the mid-1990’s, easyJet is the second-largest budget carrier in the UK. The airline flies 900+ routes across 34 countries.

Despite announcing a raft of recent cancellations, easyJet’s share price has risen a massive 37% this year.

Wizz Air – up 26%

Wizz Air is a popular budget airline, serving a number of destinations across Europe, North Africa, and the Middle East.

The airline has recently come under fire from the CAA over its failure to refund cancelled and delayed flights. Yet, despite this setback, it appears investors aren’t overly concerned with the way the airline is being run. Wizz Air shares are up 26% since the beginning of the year.

IAG (owner of BA) – up 30%

International Airlines Group (IAG) owns British Airways, plus a number of European airlines such as Iberia, Aer Lingus, Level, and Vueling.

So far this year IAG shares have risen a sky-high 30%.

How do you invest in airline stocks?

If you want to invest in airlines, you essentially have two options. You can directly buy shares in one, two, or multiple airlines of your choosing. Alternatively you can buy an airline exchange-traded fund (ETF).

Let’s take a closer look at these options…

1. Buy shares directly in individual airlines.

To buy individual airline shares you’ll need to find a suitable investment platform, and then search for the respective airline/s you wish to invest in. For more on this process – which is relatively straightforward – do take a look at our article that explains how to buy shares.

Are you interested in investing in US-based carriers? Many big-name airlines are based across the pond, so if you want to invest in an American airline, take a look at our article that explains how to buy US shares.

2. Buy an airline exchange-traded fund.

If you want wide exposure to a wide range of airline industry shares, then you may be better off buying the JETS exchange-traded fund (ETF).

This is the only real airline-based ETF. It has exposure to a number of US-based airlines including United, Delta and Southwest Airlines. It’s worth knowing this ETF doesn’t just invest in airlines, but also aircraft manufacturers and airport companies – so you can consider it an investment in the airline industry, as opposed to just carriers.

What are the risks of investing in airline stocks?

When demand for travel is high – as is the case now – airline shares can really take-off. Yet the flipside of investing in airlines is the risk of large falls if there’s a big slump in demand for international travel. We saw this in 2020, of course!

In other words, if you decide to invest in airlines, then you should expect some turbulence (bad pun intended). This is why, if you decide to invest in a particular industry – whether it’s airlines, or a totally different sector – it’s often best to do so as part of a diversified portfolio.

A diverse portfolio is important as it can provide a cushion against industry-specific falls. For example, say you only invested in airlines and nothing else. If the demand for travel crashes in future, then there’s a very, very good chance the value of your portfolio will plummet.

Yet if you instead had a mixed portfolio consisting of airline shares, plus strong exposure to other industries, such as oil and gas, gold, and a FTSE 100 tracker, for example, then you’d likely be in a different position. That’s because while your portfolio may fall if airline shares collapse, the risk of seeing your portfolio tank will be reduced thanks to your exposure to other assets.

For more on mixing things up when it comes to investing, take a look at our article that explains the importance of holding a diversified portfolio.

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Disclaimer:

When investing your capital is at risk. Remember, the value of any investment can both rise and fall. Always do your own research.

MoneyMagpie is not a licensed financial advisor. Information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence.

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Investing in airlines: Is the sky the limit?