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The sky’s the limit

Fri, 06/26/2020 - 17:24

With many countries now out of quarantine, stocks are establishing a clear uptrend. The S&P 500, DAX and FTSE 100 are all within touching distance of their pre-COVID highs. There had been concerns that the economic fallout of the virus would lead to a strong correction once the novelty of a return to normalcy wore off. Nevertheless, it looks like the big indices aren’t at all concerned with record unemployment and SME woes.

While equities are indeed performing well across the board, some sectors have been quicker gainers, and others are barely out of the starting block. Unsurprisingly, tech stocks have been both the fastest and most prolific growers since the peak of the crisis, and the Nasdaq has already reached new all-time highs. Airlines, on the other hand, haven’t been so lucky. And even as the wider economy looks to be finding its feet, the future of commercial flight is still up in the air. Many investors doubt that it will ever get back to where it was before the coronavirus.

Money worries

Apart from the obvious issues of epidemiological travel restrictions and consumer concerns about contracting the virus while flying, airlines worldwide have never been more strapped for cash.  Between refunds for cancelled flights and record low ticket sales post-lockdown, operators simply aren’t seeing enough cash coming in. As such, capital-raising and cost-cutting have been unavoidable to maintain financial reserves and offset negative cash flow.

As a result, many companies have had to go to extreme lengths to find viable funding. This ranges from seeking state aid in the case of Lufthansa Group to massive layoffs at British Airways and Iberia’s parent company IAG Holdings. Inevitably, all of this has knocked already shaky shareholder and investor confidence even further.

How long until airline stocks do take off?

When aviation share prices finally started to shoot up at the tail end of May and beginning of June, it looked like the market had finally regained its faith in the industry. But the dominant trend over the past week or so has clearly been to the downside, with Ryanair, Lufthansa and IAG all more or less back to where they were on 25-26 May. Now, as the business’s peak season approaches, investors are beginning to question whether there will actually be a summer holiday this year.

Currently, most airlines are taking measures to leave middle seats empty in a bid to enforce social distancing. But operating at two-thirds capacity isn’t really viable in the long term, certainly not without ticket price adjustments. And even if business does pick up, the share offerings many firms have used to raise capital these past few months have the potential to dilute stock price gains.

Clear skies or turbulence ahead

One thing’s for sure: as long as airline stocks are volatile, shares in aircraft manufacturers will be, too. Luckily for Libertex clients, there are always opportunities, no matter which direction the market is moving. All you need to trade CFDs effectively is a bit of volatility. Aviation stocks have got that in spades at the moment. Libertex offers CFDs in both Boeing and Airbus, so you can easily hedge your bets. Sign up today and start trading right away.

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