Just where are travel stocks like Jet2 (LSE: JET2) going to go next? One minute the Jet2 share price is climbing. And the next time I look, it’s falling again. Jet2 did well in the late 2020 stock market recovery. But although up 58% over the past 12 months, the shares are still a long way below the their pre-pandemic peak. And since a high this May, we’re looking at a 23% fall.
Something similar has happened with the easyJet and TUI share prices. They both peaked around the same time, and have both since fallen back. Do these ups and downs give me a buying opportunity?
That volatility could be a double-edged sword. While it’s nice to buy shares during dips, airlines in particular can be very susceptible to longer-term economic cycles. In particular, they have little control over costs, including fuel. And oil is back up around $75 per barrel. So that must surely be contributing to the recent share price weakness affecting all three.
Jet2 share price support
The spread of the Covid delta variant can’t be helping. But I think it’s a mistake to look only at month-by-month progress. What happens over the next few years is far more important. And right now, for the Jet2 share price and others in the sector, I’d say it’s all about liquidity.
Jet2 ended the year to March 2021 with a loss from continuing operations of £373.8m. But through a combination of debt, equity, and other activities, the company enhanced its liquidity by an extra £1bn. As recently as 4 July, the airline had a cash position of £1.908bn. It includes an ‘own cash’ position (which excludes advance customer deposits) of £1.46bn. That’s even after $1.4bn in customer refunds, and it looks comfortable enough to me.
Competition is tough
But even if Jet2 is on the way back, there’s one thing that worries me a little. It’s easyJet, which is a more established and better known airline. It does raise the question of whether brand really matters in the airline business. Generally, I don’t think it matters a lot. But in the very competitive business of short-haul budget airlines, any slim advantage could make a difference.
But TUI is perhaps more challenged. Alone of the three, it’s still in negative territory over 12 months, while the others have made it some way back up. And over two years, TUI shares are down 53%. That compares with a 42% gain for the Jet2 share price, with easyJet down 5%.
Government bailout
But there’s one thing that should help limit the future downside for TUI, the German government. Berlin has provided the company with several bailouts during the pandemic. And hopefully that should be enough to see it back to profitable days again.
Might Jet2 soar? I really do think that, together with easyJet and TUI, it could end the year higher. But I’m sticking with my well-tested rule to keep away from airlines. And there’s too much uncertainty in the holiday business in general for me.