UK Airlines Poised for Strong Summer

UK-based airlines are expected to see gains as they look ahead to an upbeat summer amid higher costs and a European economy hoped to rebound.

It's Not Just the Low-Cost Carriers

In its first quarter trading update, UK budget carrier easyJet said it anticipated strong summer travel demand. The company reduced its winter loss thanks to positive movement in the key travel markets, joining a general surge in airline stocks. Flagship UK holder and owner of British Airways and Iberia IAG has seen its shares rise 11% this year. However, it could face a little hiccup in Spain as its planned acquisition of Air Europa enters political territory. The Spanish Prime Minister gave himself until Monday to decide whether to resign after a court in Madrid began an investigation into his wife over alleged favourable treatment for Air Europe during the pandemic.

Airlines' other potential problem is continuing tensions in the Middle East, which has lowered demand for flights to Israel, a popular winter destination. EasyJet has allocated less capacity to the route but appears confident that travellers will compensate by travelling to other areas in the network, adding capacity to routes like Malaga and Mallorca.

Potential for Continued Growth

The bigger impact of the Middle East crisis might be the cost of fuel, which has forced even budget carriers to raise prices. EasyJet reported that the 6% inflation in seat prices in the initial quarter didn't dent demand. The company is expected to more than double its pretax profit in the more lucrative part of the year as it looks to acquire more customers aggressively.

IAG, on the other hand, is focused on its push to aggressively acquire more airlines, with a recent industry conference urging European regulators to push through with the approval of the merger with Air Europa. The leaders of the major airlines believe that the European market is headed for consolidation along the model of mergers like British Airways - Iberia, Air France - KLM, and Lufthansa's pending takeover of ITA (former Alitalia). While its major European competitors fight over domestic routes, IAG can focus on its extensive and more profitable cross-Atlantic network. IAG will issue a trading update for the initial quarter on May 10.

IAG Confirms Triangle Breakout?

IAG rebounded sharply from a correction to its descending triangle trendline around 156 GBX, potentially confirming a breakout by retesting the triangle's territory. While short-term pressure may persist around 180 GBX, the stock could rise above 200 if the measured-move projection manifests into prices. However, a failure to hold above 165 GBX could increase the chances of further drops, with supports at 150 and 140 GBX exposed in the event of a breakdown.

Source: SpreadEx / IAG

Key Takeaways

UK-based airlines expect gains this summer as costs rise and the European economy is anticipated to rebound. EasyJet and IAG gained on strong travel demand forecasts and expect profitable summer periods with aggressive customer acquisition. However, IAG faces issues completing its Air Europa acquisition due to political challenges in Spain. However, European carriers may consolidate further through mergers like IAG-Air Europa, reflecting the leaders' calls for regulatory approval. The company still focuses on its extensive cross-Atlantic network while competitors pursue domestic European routes.