Let’s talk about airlines. Lufthansa will need government help, Delta Airlines, American Airlines are still in the negotiation process. All over the world the biggest airlines are in need of liquidity and besides that one of the big losers of the current covid-19 crisis.
But recently I recognized that there is a difference between huge and often established airlines and the low-cost airlines sector.
I made a little research and discovered that we can see huge difference in the balance sheets and also in the stock price development.
Cause of the low-cost model, airlines like the Irish Ryanair or the Turkish Pegasus, such airlines have a better balance sheet and also far less debt.
In the graphic above I compared the stock price development of different airlines since the beginning of this year. There you can also see that all stocks fall in value but there are differences.
The CEO’s of the low-cost airlines also said that it will be unlikely that they need government aid in form of new liquidity, because they have enough cash reserves for the next few months. You have to understand that if an airline needs government aid, then this will be subject to certain conditions, like for example no more stock buybacks and no dividends for the shareholders. This could make these stocks less attractive for investors in the mid-term against the stocks of low-cost airlines.
Another simple fact of these low-cost airlines is that they still have a huge growth potential in revenue which could potentially outperform the big players.
These facts make me more optimistic about the low-cost airlines and with that the stock price development in the mid-term.
But keep in mind that if the crisis will last longer than anticipated, also the low-cost airlines will begin to struggle and need to ask for financial help.
For now, and in the current situation they’re definitely in a better initial situation than the big players in the market.