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Lufthansa bailout and easing travel bans give airline stocks a boost

03 May 2020, Hessen, Frankfurt/Main: Decommissioned Lufthansa passenger aircraft are parked at Frankfurt Airport. Lufthansa has got into massive financial difficulties due to the Corona pandemic. Negotiations are currently being held about possible state aid for the airline. Photo: Boris Roessler/dpa/Boris Roessler/dpa (Photo by Boris Roessler/picture alliance via Getty Images)
Lufthansa announced over the weekend that it would resume flights from mid-June to 20 destinations. (Boris Roessler/picture alliance via Getty Images)

After weeks of negotiations, Lufthansa (LHA.DE) and the German government finally agreed on the terms of the airline’s €9bn (£8.05bn, $9.8bn) bailout on Monday.

The terms of the rescue package include the German government taking a 20% stake in the airline — with the option of increasing that to 25% plus one share.

However, the European Commission is yet to approve the deal.

A Bloomberg report on Tuesday cites sources as saying that the Commission will demand Lufthansa give up prime landing slots to ensure it is not getting an unfair advantage over competitors.

“The EU Commission will certainly feel the heat from Ryanair CEO Michael O’Leary if they do wave this bailout through without extracting a heavy price from Lufthansa, which has been badly run for several years now,” said CMC Markets analyst Michael Hewson.

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Still, the fact that Lufthansa is now better armed to withstand the crisis, coupled with the news that travel bans may be dropped in time for some semblance of a summer vacation period, have given stocks across the travel sector a boost.

Lufthansa (LHA.DE) shares were up 4.9% in Frankfurt. Tui (TUI1.DE) shares were also up by double digits, while British Airways owner IAG (IAG.L) shares were up nearly 15% in early trading. EasyJet (EZJ.L) also gained nearly 12%.

Lufthansa announced over the weekend that it would resume flights from mid-June to 20 destinations.

Spain said on Monday that it would allow tourists to return from July, while Germany aims to lift its travel warning, in place since 17 March, for 31 European countries from the middle of June.

According to a foreign ministry draft paper seen by German media, tourists will be able to visit Germany from all EU member countries, plus the UK, Iceland, Norway, Switzerland and Lichtenstein. The proposal still needs approval, and restrictions could be reintroduced if a second wave of the virus hits.

"The revitalisation of tourism is important for both travellers and the German tourism industry as well as for the economic stability in the respective destination countries," the paper from the Foreign Ministry said.

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“Strength in this sector underscores confidence among investors that economies are reopening, and consumers are keen to travel,” said Neil Wilson, chief market analyst at Markets.com. “If the summer holiday season can be saved it would be a big plus after most of us wrote it off.