Fly Me To The Moon

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What's going on?

Morgan Stanley wants to let investors play among the stars (or at least the stratosphere): the bank’s analysts reckon now’s the time to buy US airline stocks.

What does this mean?

The Chairman of the Board (or at least the transport research team) sees a future in which coronavirus vaccines bring airline passengers back in bulk. In fact, Morgan Stanley predicts demand could return to pre-pandemic levels by late 2021 – two years sooner than most other forecasts. Against that backdrop, the investment bank’s betting domestic airlines with shorter routes and cheaper fares will recover first – and that those which were either previously very profitable or on that trajectory will end up back on top.

All the same, Morgan Stanley warned that a worsening pandemic could drive desperate carriers to slash prices – potentially causing a race to the bottom that would hit everybody’s profits. That risk may be why billionaire investor Warren Buffett sold all his airline stock holdings four months back…

Why should I care?

For markets: An uneven runway.

The bank recommended on Tuesday that investors looking to follow its lead buy into both low-cost US carriers and the strongest of the country’s so-called “legacy” airlines – which its analysts believe is Delta Air Lines (tweet this). Investors across the Atlantic, meanwhile, might be minded to board the likes of Ryanair and Wizz Air: they’re currently adding more planes to their fleets even as larger European rivals struggle. Not only should demand for their short-haul routes recover faster than for rivals’ intercontinental fares, but they’ve also got more cash on hand.

The bigger picture: Too big to flail?

Some previously profitable high-flyers are running on fumes after six months up in the air. Troubled European airline group IAG – owner of Iberia and British Airways – is hoping to raise $3 billion from existing investors in order to help it weather the storm: it’s still only flying at 20% of its pre-pandemic level, with hefty overheads burning through $26 million a day.

Originally posted as part of the Finimize daily email.

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