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Summary
- PM Boris Johnson plans to lower air passenger duty on domestic flights to improve connectivity across the nation.
- Aviation companies including easyJet, TUI AG, and International Consolidated Airlines Group SA are likely to be positively impacted.
Air passenger duty is expected to be cut on domestic flights as British PM Boris Johnson said he supported reforms to boost air links across the nation. An exemption for return legs or reduced rates for flying in the UK could be on cards, according to media reports. With this move, the troubled aviation industry will get some relief with improved connectivity within the UK, bringing back prominent aviation stocks under the investors’ radar.
Additionally, the government plans to commit £20 million to upgraded transportation systems across air links, road, sea, and rail. It will also explore ways and means to decarbonise the British aviation sector, as part of its ambition to reach net zero emissions.
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Let us take a look at the likely impact of these government moves on select aviation stocks -- EZJ, IAG and TUI.
Also Read: 3 Travel Stocks That Surged After Portugal and Cyprus Reopen to UK Tourists
EasyJet
With the latest announcement of cutting the air passenger duty, demand will recover quickest at low-cost flyers such as easyJet, said market experts. Further, the firm has already put out its summer flight schedule on sale for the next year as well (1 June to 30 September 2022).
On 22 February, PM Johnson had announced a roadmap for air travel to return saying that global trips could restart as soon as 17 May. Hours after the announcement, ticket sales of easyJet more than quadrupled.
Shares of the low-cost carrier started advancing with customer demand waiting to be unleashed over the summers. In fact, easyJet (LON: EZJ) shares rose by more than 30 per cent since this January to close at a value of GBX 1004 on Tuesday, 9 March.
Also Read: Aviation sector calls on Johnson for more support
IAG
The IAG share prices also saw an upswing thanks again to the UK Covid roadmap along with summer optimism. Moreover, the group’s recently appointed CEO Luis Gallego has initiated various staff and supplier cost-cutting measure to slash weekly expenses by more than half.
Shares of International Consolidated Airlines Group SA (LON: IAG) which have jumped by more than 40 per cent so far this year, traded at GBX 209.60 at the day’s close on Tuesday, 9 March.
TUI AG
The tax on flights (air passenger duty) from airports is charged to airlines and can add £13 to every short-haul ticket, said market experts. Slashing the duty will surely push up the domestic travel demand. In fact, Andrew Flintham, managing director of TUI UK, said that many aviation companies would be able to sail through the pandemic-led crisis as the flight levies get reduced.
The company share (LON: TUI) closed at a price of GBX 433.9 on 9 March, having risen by more than 43 per cent since the start of the year.
Overall, it was good news that the travel stocks were displaying optimism, with a promise of a recovering summer and a boost to local demand, said Neil Wilson, chief market analyst, Markets.com. At the same time, international travel could remain uncertain and subject to testing, quarantine, and restrictions, even when the bookings have shot up, he added.
