These are the airline stocks that are ready to take flight

Record numbers of passengers at Heathrow indicate that wanderlust has been reignited, with large numbers of passengers expected to take to the skies over the Christmas holidays.

The results are proof that we continue to prioritize holidays over other expenses.

For many, an outing is not a treat, but essential. Does this evidence that the post-pandemic passion for travel is here to stay mean you should consider a run-up in airline stocks?

Yes, but it’s important to distinguish companies that are doing well from those whose predicament illustrates why this sector can be ‘a difficult investment destination’, as Richard Hunter of broker Interactive Investor puts it. But Jack Barrat, portfolio manager at investment manager Man Group, claims there are some ‘rare opportunities’ available.

The aviation sector is often a source of irritation, with flight delays and poor customer service.

But the things that annoy you the most as a customer, such as baggage fees, can be a useful source of revenue for airlines, boosting their key metric, RASK (revenue per available seat kilometer).

Some in the industry are finding new ways to convert their planes into so-called “shops with wings.”

Earlier this year WizzAir launched a £534 All You Can Fly Netflix-style subscription. Its 100,000 members enjoy unlimited flights for £8.90 each, but they must pay for all baggage except one small personal item.

While we can expect more innovation, investors should be aware that all airlines are vulnerable to severe turbulence from external factors beyond their control.

In 2010, they suffered the eruption of the Icelandic volcano Eyjafjallajokull, which canceled thousands of flights. The pandemic has also wreaked havoc on the sector.

So which stocks are ready to take off and which will lag behind?

IAG

IAG, or International Airlines Group, is the £14.2 billion group that owns British Airways, Aer Lingus, Iberia and Vueling. In June, when the share price was 167p, this column reported that several analysts considered the stock to be undervalued. This was a reasonable assessment as the price has subsequently risen to 293.2 cents, although it is still 50 per cent lower over five years, demonstrating the extent of the damage caused by the pandemic.

However, the third quarter results indicated that IAG continues to put this unfortunate era behind it.

Operating profit rose 15 percent to £1.7 billion, boosted by improved demand for seats on transatlantic routes, a share buyback program, the restoration of the dividend and some debt reduction.

Despite this year’s rise, some analysts say the shares are still on the rise. The average target price is 342 cents. One analyst apparently believes the sky is the limit, but has set a target of 599p.

EASYJET

Shares in the £4.4bn airline have risen 16 per cent since January to 586.6p, driven by a 34 per cent rise in full-year pre-tax profits to £610m – and the outlook for 2025 is positive.

EasyJet has been helped by a successful foray into higher-margin package holidays, a venture pioneered by boss Johan Lundgren, who resigned last month. His successor, Kenton Jarvis, plans to attract “25 percent more customers” on such holidays, which will suit budget-conscious families.

Most analysts think the only way for easyJet shares from here is up, rating the stock as ‘buy’. JP Morgan analyst Harry Gower set a price target of 750p earlier this month. Jarrod Castle from UBS has opted for 800p.

WIZZAIR

Despite the popularity of the All You Can Fly loyalty program, shares are down 33 percent since January – and 63 percent since the pandemic began.

This is partly due to a series of crises at the London-listed Hungarian airline. These included problems with the Pratt & Whitney turbofan engines (GTF), which temporarily grounded about 40 aircraft, leading to a 20 percent drop in half-year profits.

Boss and founder Jozsef Varadi has said the engine problem may not be fully resolved until 2027. But analysts believe anyone who already owns the shares should stay put.

RYANAIR

Shares in Dublin-listed Ryanair have recovered in recent months amid perceptions that the low-cost carrier can shed some of its woes. Last month, Michael O’Leary, Ryanair’s perpetually controversial and controversial boss, said the airline was ‘overbooked, overstaffed and overloaded’ over the summer. He also revealed it is scaling back passenger growth for 2025 in response to delivery delays of its Boeing 737 Max planes.

But Ryanair has settled its dispute with online travel agencies such as Booking.com, which had refused to sell its tickets after a period of conflict.

This week, Alexander Irving of broker Bernstein advised clients to buy Ryanair, with a target price of €22.50. Alexia Dogani from JP Morgan is also a fan and has set a price of €25.

Since O’Leary owns a 3.9 percent stake in the company, he hopes these predictions come true.

JET 2

Ryanair and Wizz Air’s woes have been a boon for AIM-listed Jet 2. Last month the Leeds-based airline reported record revenues, profits and passenger numbers for the half year.

The company seems to want to satisfy its customers while rewarding its investors. Shares are up 30 percent this year to 1620p. You might not think further progress was possible, but analysts rate Jet 2 a ‘buy’, with an average price target of 1,996p. Investors will hope that the climb to this level will be smooth.