(Bloomberg) -- The easing of U.S. and U.K. travel restrictions is breathing new life into European airline stocks.

British Airways owner IAG SA has been the star of the show in the last two weeks, soaring 21% after the White House said America would open up to vaccinated foreigners and the U.K. relaxed coronavirus testing requirements for fully jabbed arrivals. Air France-KLM and Deutsche Lufthansa AG have also rallied strongly, as have budget carriers such as Ryanair Holdings Plc.

But investors are divided on whether the gains can last and the industry has been a laggard for a long time. European airlines remain about 25% below pre-pandemic levels, underperforming sectors like industrials and retail, which are up as much as 30% from where they were back then. The catalyst of air-travel reopening could be just what they need for a more sustained revival, though the possibility of fresh restrictions is a constant risk.

Investors should look “very seriously” at so-called reopening sectors like travel, said Alan Custis, head of U.K. equities at Lazard Asset Management. “The opportunities now, one would argue are much, much better, perversely, than they would have been probably if the pandemic hadn’t happened.”

That’s because excess capacity in aircraft, hotel rooms and restaurants has been eliminated, Custis said in an interview. “There’s been a sea change.”

A similarly positive stance is held by Mamta Valechha, an analyst at Quilter Cheviot, which manages about 25 billion pounds ($34 billion). “We do continue to see value in the travel sector, particularly airlines which have been hit the hardest and are still way off their 2020 peaks,” Valechha said.

Positive news is starting to gather pace. The relaxation of U.S. rules led to a surge in bookings from Europe to the U.S. Air France-KLM reported a spike in Christmas bookings, while Lufthansa was upgraded at Goldman Sachs.

And while analysts have been slow to raise estimates for airlines, consensus is on an upward slope. Data compiled by Bloomberg suggests the sector could be profitable again within about a year.

Other areas of the travel industry are also showing better signs. Tour operator TUI AG added 10% in three days after Britain said Sept. 17 that it would scale back testing requirements and simplify its country risk rankings. Booking software provider Amadeus IT Group SA, airport retailer WH Smith Plc and hotelier Accor SA are among a raft of other stocks that have rebounded of late, although all remain well below pre-pandemic levels.

Still, investors may need to be patient. “Travel stocks are a next year story,” said Alasdair McKinnon, lead manager of Scottish Investment Trust Plc. “This year has already gone from a leisure travel perspective as the main holiday season has passed,” he said.

The shift toward working from home, meanwhile, is still having a knock-on effect for travel earnings, according to Quilter Cheviot’s Valechha, who estimates that corporate passengers make up 30% to 60% of airline revenue. “There remains much uncertainty when this will recover given the advancements in technology to do business remotely,” she said.

Resurgence Risk

Covid-19’s resurgence in key Asian destinations also poses a risk for some firms, such as London-listed InterContinental Hotels Group Plc, according to Hannah Gooch‑Peters, an equity investment analyst at Sanlam U.K., which manages about 4.9 billion pounds.

Sanlam holds travel stocks like IHG, but reduced its exposure in February. “The valuations of these companies are not looking that compelling,” Gooch‑Peters said in an interview, “What we need is a more synchronized recovery, globally, for these stocks to really see a big increase from here.”

For Gavin Launder, a fund manager at Legal & General Investment Management, investors looking at airline stocks need to be able to trust that the next reopening wave won’t be followed by another setback.

“I think it’s very clear that people want to travel,” Launder said. “So that will be a good trade at some point, but we need that confidence that it’s going to be a bit more than a false start.”

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