EZJ, TUI, WIZZ, JET2, and IAG shares in danger as chaos continues

[MongiIG]

easyJet shares are down by 8%, TUI down 22%, Wizz Air down 11%, Jet2 down 9% and IAG shares down 15% in the past month alone.

Source: Bloomberg

 

Shares Airline International Airlines Group EasyJet Jet2.com United Kingdom

 Charles Archer | Financial Writer, London | Publication date: Thursday 02 June 2022 

Despite boasting that pent-up demand for air travel would come back with a vengeance in 2022, UK airline stocks, whether FTSE 100 or FTSE 250, appear woefully underprepared.

EZJ, TUI, WIZZ, JET2, and IAG shares: travel chaos

It’s not hard to find the stories and photos of disappointed and angry customers in airports across the UK. With thousands of flights cancelled, luggage disappearing, and queues stretching into the horizon, chaos is about as apt a word as any to describe the current situation.

And the source of the disruption is clear. The covid-19 pandemic saw travel demand collapse, forcing airlines to let go of staff while simultaneously taking on mountains of debt.

Industry body Airlines UK estimates that UK airlines cut their workforce from 74,000 people in 2019 to just 44,000 during the pandemic. Thousands more of the 66,000 staff employed by airports and aviation support companies pre-pandemic were axed.

Swissport alone more than halved its 8,500-strong workforce; and while it’s since rehired 2,800 people, 1,200 are still waiting for their security clearance.

With CPI inflation at 9% and 1.3 million job vacancies in the UK, every airline is struggling to hire workers willing to travel to an inconveniently located site for low pay, long hours, and shift work that inevitably involves late nights and weekends.

For example, IAG British Airways is paying a salary ‘in the region’ of £25,500 a year for a full-time Ground Operations Agent. While also offering an additional £1,000 time-locked sign-on bonus, this works out at just over £400 a week, compared to the ONS UK average of £615.

And that’s with no guarantee that their job won’t be axed again if an airline collapses under debt or the pandemic resurges.

Shadow Transport Secretary Louise Haigh has called on the government to address multiple problems including the ‘chronic low pay.’ However, the industry is in a catch-22. Already facing increased costs, pay rises will need to be tacked onto flight tickets. And consumers are firefighting the cost-of-living crisis as well.

But Unite is already balloting BA’s 700 check-in staff to reverse a 10% pay cut imposed during the pandemic. The ballot closes on 27 June, and a vote in favour would cause even further disruption at the peak of the summer season.

Source: Bloomberg

Training challenges

Training new staff cannot start until new hires gain security clearance from the Civil Aviation Authority and the government. This is reportedly taking far longer than in the past.

Former IAG CEO Willie Walsh, who now works as director-general of the International Air Transport Association, recently warned ‘you can’t start the training until you’ve got the security clearance. You offer them a job, they accept it, and then you have to go through this period of three months to get security clearance – they’re not gong to hang around. They’ll go and find a job somewhere else.’

To help solve the crisis, the government changed the vetting rules at the end of April so that they can be partially trained while waiting for their clearance. Moreover, the Cabinet Office told BBC News ‘there are absolutely no delays to security vetting of applicants. It is wrong to suggest otherwise, and we are prioritising vetting applications from the aviation industry.’

Meanwhile, Transport Secretary Grant Shapps has argued that ‘operators seriously oversold flights and holidays relative to their capacity to deliver. This must not happen again and all efforts should be directed at there being no repeat of this over the summer.’

Jet2 CEO Steve Heapy thinks ‘Brexit has taken hundreds of thousands, if not millions of people out of the employment market and that undoubtedly is having an impact.’ However, the government has ruled out changes to the Shortage Occupation List to allow EU workers to fill the gap.

And the Passport Office has reported that 5 million people delayed their passport applications during the pandemic amid worsening wait times. UK airline stocks could be hit with even higher demand in a few weeks, just as staff threaten to strike amid a training and recruitment crisis.

Moreover, most airlines don’t expect to be running at pre-pandemic capacity levels this quarter. Just 4.2 million people went through Heathrow in March 2022, compared to the 5.4 million seen in February 2020 before the pandemic began.

easyJet, TUI, Wizz Air, Jet2, and IAG shares are trading on optimism for a summer boom. But time is not on their side.

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