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MILAN, Feb 25 (Reuters) - Shares of heavily-shorted airline
Air France KLM rallied as much as 10% on Thursday as
early signs of easing travel restrictions lured investors to a
sector heavily hit by the COVID-19 pandemic downturn.
Traders said a short squeeze was helping drive the gains in
the cash-burning carrier even though last week the Franco-Dutch
group warned of more pain to come after suffering a 7.1
billion-euro ($8.7 billion) annual loss.
Despite the grim update Air France KLM shares have risen as
much as 25% since then, tracking a sector rally that has driven
Europe's travel and leisure index to just below
pre-pandemic levels. Lufthansa also rose on Thursday.
"Air France-KLM and Lufthansa outperforming the rest of the
sector today may reflect some short positions unwinding given
they are some of the most heavily shorted names in the sector,"
Credit Suisse analyst Neil Glynn said.
"They are among the most sensitive to changing sentiment on
traffic recovery prospects given high financial leverage and
traditionally high operating leverage to revenue fluctuations.
However, we think this must be considered alongside
restructuring challenges," he added.
Travel restrictions within the European Union have fallen to
78% of routes as of Feb. 1 from 87% two weeks before, providing
an early sign of restrictions loosening that bodes well for
summer bookings, UBS said on Monday.
By 1123 GMT, Air France KLM shares had pared some of their
earlier gains but were still up 3.5% on the day. The travel and
leisure index also pulled back after hitting a fresh 12-month
high.
Other travel stocks like TUI, cruise operator
Carnival and hotelier Accor have all risen
nearly 20% in the last two months, but fell on Thursday.
With 91% of shares available for shorting out on loan,
according to FIS Astec, Air France KLM has been a favourite
target of hedge funds seeking to profit from a fall in the stock
price.
The recent gains could expose short sellers to potential
losses.
According to regulatory filings, Point72 Europe LLP has a
1.4% bearish bet against Air France KLM, up from 0.8% last
month, and Helikon Investments has lifted its short bet to 2.8%
from around 2.5%. Neither responded to a request for comment.
Short sellers typically borrow and sell shares they expect
to fall in value, hoping to buy them back at a lower price to
pay back the loan and pocket the difference.
($1 = 0.8177 euros)
(Reporting by Danilo Masoni in Milan and Sarah Morland in
Gdansk;Editing by Elaine Hardcastle)
