Low-cost airlines have fared much better than their more established rivals over the past year. E...
Low-cost airlines have fared much better than their more established rivals over the past year.
EasyJet saw year-on-year volumes rise by 39% to 839,000 passengers to the end of March, while Ryanair saw the number of passengers increase by 48% to 1.02 million, according to figures from the airlines themselves.
Go saw an even more spectacular increase of 81.5% to 429,000 passengers. Over the same period, British Airways saw a decline of 4.1% in passenger numbers.
While the environment for national carriers like British Airways may have appeared gloomy recently, some managers have done well out of holding the stock. Derek Lygo, head of UK equities at First State Investors, says: 'I bought into BA at £1.50 in October when negative news on passenger numbers and the aftermath of 11 September meant that sentiment was very poor. They have now moved up to £2.20.'
Lygo says that looking at the company's asset base, the stock has a paper value of £2.80 per share, meaning there is still room for upside.
But Humphrey van der Klugt, director at Schroders, is much less positive on the sector. He says the low-cost airlines are in a good position but doubts whether there is much further upside.
He says: 'Although I think operators like EasyJet are in the best position to benefit from the economic background, the pick-up in passenger numbers will remain subdued. The oil price is going up and I would say the cyclical recovery is priced in for budget airlines.'
Lygo also sees the rising oil price as a threat to airlines but points out that most airlines hedge the oil price by buying reserves.
While he concedes that such information is not readily available, he says the generally available information on airlines is positive.
'The statistics come out frequently, data is of good quality and detailed information like passenger traffic numbers provides good, up-to-date indicators of airlines' health,' he notes.
One such measure of this health is load factor ' the share of seats filled. This is another indicator that shows the budget players as being well placed.
Figures released earlier this month show that Go, the former subsidiary of British Airways, had a load factor of 83.4% in March from 74.3% a year ago. EasyJet also showed improving figures ' its load factor was 85.9% compared to 82.6% last year, while Ryanair showed a 7% increase to 79%.
Numbers pointing to a recovery in business traffic make Lygo think the increasing oil price has stopped shares rallying further. But, he adds, uncertainty about British Airways' strategy has also damaged confidence in the carrier.
He says a departure away from a focus on the higher end of the market has made analysts uncomfortable.
The airline has started competing with the budget airlines on some routes which, in some ways, represents a turnaround from the strategy that saw it releasing routes out of Gatwick and focusing on the most profitable ones, says Lygo.
Passengers have been on the increase.
Airlines set to benefit from cyclical recovery.
British Airways priced at under asset value.
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