European stock markets at record levels, but aviation shares lag far behind

While the shares of major European companies have risen by almost 80 percent on average since the height of the corona crisis in March 2020, those of airlines have only risen by 23 percent. And compared to the period before the corona crisis, most European companies have not yet recovered at all.

Of the big six (Lufthansa, British Airways parent company IAG, Air France-KLM, Ryanair, easyJet and Wizz Air), only Ryanair shares are now more expensive than in February 2020, shortly before the stock market collapsed. The stock price of the rest is considerably lower, with variations from -30 percent for Lufthansa to almost -80 percent for the French-Dutch Air France-KLM.

Capricious sector
The volatility of the sector has made many investors hesitant to invest in airline stocks again. Aviation is not only very sensitive to geopolitical events and virus outbreaks, but also to oil price fluctuations. If oil becomes more expensive or cheaper, this will have a major impact on profitability.

Many professional investors therefore ignore aviation. They prefer to buy shares in more stable companies, or in sectors with greater upside potential (such as tech).

Bargain?
Yet according to some analysts, airlines are now so ‘cheap’ on the stock exchange that they can still be interesting for bargain hunters. For example, the expected price-earnings ratio (the expected earnings per share for the current financial year divided by the stock price) is only 2.4 for Air France-KLM, compared to an average of 13.6 in Europe.

In general, analysts are more positive about the low-cost airlines (Ryanair, easyJet and Wizz Air) than about the large network airlines Air France-KLM, IAG and Lufthansa. This is partly due to their lower cost base in a highly competitive market and their more limited exposure to geopolitical changes, as they only fly in Europe and surrounding countries.