Airline stocks boosted by plans for rapid COVID-19 airport test

Airline stocks are gaining on Tuesday following news of a rapid COVID-19 test that can be taken at the airport within an hour of departure.

IAG (IAG.L) has been leading FTSE gains throughout Tuesday, up 7.6% at around 4:15pm in London. EasyJet (EZJ.L) shares are also up by 5.7%, reaching a one-week high.

The test will cost £80 ($104) and would be run by Collinson, a private firm. The pilot programme is aimed to help individuals travelling to countries where proof of a negative test is required upon arrival. Initially, the tests will only be available for passengers going to Hong Kong and Italy. Both places require pre-flight tests that prove a passenger does not have coronavirus.

The UK has been classified as being “at risk," which makes air travel more difficult for travellers who face increased restrictions.

“If rolled out across the sector, and accepted as a good benchmark of a passenger being Covid clear, then this could be the catalyst to get people back in the air again, and open up a path for a recovery in civil aviation,” said Michael Hewson, chief markets analyst at CMC Markets.

“While the principle sounds great, I’m not entirely convinced it’s the silver bullet people think it is given that even people who get tested regularly can test negative one day, only to test positive 24 hours later.”

Both IAG and EasyJet stocks have been both leaders and stragglers on the FTSE over the past few months as COVID-19 restrictions continue mounting and governments around the world struggle to contain the virus.

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Part of the optimism that sent both company’s shares higher could be news that American airlines carried 1 million passengers a day on Sunday, the first time they had done so since March, said Russ Mould, investment director at AJ Bell.

“Although that still represented a 60% year-on-year drop, it was a lot better than the 80%, 90% or more falls to which investors have become accustomed during the pandemic and markets always react to the second derivative – the rate of change in the rate of change. At the moment, the drops in airline passenger figures in the US are becoming less bad and that is encouraging some brave contrarians to get involved.”

He also agreed that news of a one-hour COVID-19 test could be boosting sentiment.

“British Airways will be one of the first to run the scheme and investors may be tempted to see anything that persuades people to fly, and help IAG reduce its cash burn and losses, as a good thing,” he said.

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