These are the airline shares able to take flight

Record passenger numbers at Heathrow indicate that wanderlust has been rekindled, with multitudes expected to take to the skies during the Christmas break.

The results are more evidence that we continue to prioritise holidays over other spending.

For many, a getaway is not an indulgence, but an essential. Does this proof that the post-pandemic passion for travel is here to stay mean that you should consider a flutter on airline stocks?

Yes, but it is important to sort companies that are thriving 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, contends that there are some ‘rare opportunities’ available.

The airline industry is frequently a source of irritation, with flight delays and poor customer service.

But the things that may most annoy you as a customer, like extra costs for bags, can be a useful source of income for airlines, boosting their key metric, the RASK (revenue per available seat kilometre).

Some in the sector are finding fresh ways to turn their planes into what have been called ‘shops with wings’.

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

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

In 2010, they suffered after the eruption of Icelandic volcano Eyjafjallajokull, which caused thousands of flights to be cancelled. The pandemic also played extreme havoc with the industry.

So which shares are ready for take-off and which will continue to be left behind?

IAG

IAG, or International Airlines Group, is the £14.2billion group that owns British Airways, Aer Lingus, Iberia and Vueling. In June, when its share price stood at 167p, this column reported that several analysts considered the stock to be undervalued. This was a reasonable assessment since the price has subsequently climbed to 293.2p, although it remains 50 per cent down over five years, revealing the extent of the damage wrecked by the pandemic.

However, third-quarter results indicated that IAG is continuing to leave this unhappy era behind.

Operating profits rose by 15 per cent to £1.7billion, boosted by improved demand for seats on transatlantic routes, a share buyback scheme, the restoration of the dividend and some reduction in debts.

Despite this year’s rise, some analysts argue the shares are still headed upwards. The average target price is 342p. One analyst evidently believes that the sky is the limit, however, setting a target of 599p.

EASYJET

The shares in this £4.4billion airline have risen by 16 per cent to 586.6p since January, propelled 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 last month stepped down. His successor, Kenton Jarvis, plans to attract ’25 per cent more customers’ on such vacations, which suit value-conscious families.

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

WIZZAIR

Despite the popularity of its All You Can Fly loyalty programme, shares have fallen by 33 per cent since January – and by 63 per cent since the onset of the pandemic.

This is partly due to a string of crises at the London-listed Hungarian airline. These include problems with its Pratt & Whitney geared turbofan (GTF) engines that left about 40 planes temporarily grounded, leading to a 20 per cent drop in half-year profits.

Boss and founder Jozsef Varadi has said the engine issue may not be fully solved until 2027. But analysts think that anyone already holding the shares should stay put

RYANAIR

Shares in Dublin-listed Ryanair have rebounded in recent months, amid the perception the low-cost carrier may be casting off some of its woes. Last month Michael O’Leary, Ryanair’s perennially controversial and disputatious boss, said the airline was ‘over-scheduled, over-crewed and over-costed’ during the summer. He also revealed that it was trimming passenger growth numbers for 2025 in response to delays in the delivery of its Boeing 737 Max planes.

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

This week Alexander Irving of the brokers Bernstein advised clients to buy Ryanair, setting a target price of €22.50. JP Morgan’s Alexia Dogani is also a fan and has set a price of €25.

Since O’Leary owns a 3.9 per cent stake in the company, he will be hoping that these predictions come true.

JET 2

The woes of Ryanair and Wizz Air have been something of a boon to 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 please its customers, while also rewarding its investors. The shares have leapt by 30 per cent this year to 1620p. You might not think that further progress was possible, but analysts rate Jet 2 a ‘buy’, with an average target price of 1,996p. Investors will be hoping that the ascent to this level will be smooth.