A Wing And A Prayer For The Airline Industry

A Wing And A Prayer For The Airline Industry

11 months ago2 mins

The Federal Aviation Authority (FAA) grounded all flights on Wednesday after a key IT system crashed.

What does this mean?

Airlines have had it tough lately, and Wednesday’s flight-canceling technological mishap is yet another example of the roadblocks – or, uh, flight blockers – they’re up against. The whole debacle just about sums up investing in the industry: see, while plenty of sectors are negatively affected by world events, airlines have a reputation for being especially vulnerable. The pandemic, for one, literally grounded the sector for an achingly long time. Then almost as soon as vacationers started lining up at the check-in desks again, sky-high fuel prices – a result of the ongoing war in Europe – sent airlines’ costs heavenward. So while irrationally fearful fliers can find comfort in their pilot’s extensive training and impeccable safety record, nervous investors may be right to have their guards up.

Fuel prices
Source: IATA

Why should I care?

For markets: Ryanair’s in the mile-high club.

There's one airline that's, ahem, flying high right now: Ryanair upped its profit forecast last week. The budget Irish carrier may not have the luxury trimmings that attract comfort-seeking business executives, but in a post-pandemic world, it's the budget-savvy traveler that's the real prize. So while other airlines face a long taxi back to their old highs, Ryanair's stock already has lift-off – it’s climbed 17% so far this year.

Ryanair stock
Source: Google Finance

The bigger picture: Down in the debt dumps.

Mind you, this could be a well-needed lesson for airlines like Delta and American Airlines. Back in the pre-pandemic boom years, the over-confident carriers borrowed heaps of cash to fund sleek, new airplane fleets, betting that a never-ending stream of travelers would help them repay the loans. But Covid caught them unawares, and forced airlines to borrow even more just to stay afloat – sorry, airborne. And because savvy would-be investors know those piling debts will get in the way of any lofty returns, they’re likely to take their time before climbing aboard.



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Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

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