Schroders' Richard Buxton remains bullish on British Airways despite losses caused by the volcanic ash crisis and plans to increase exposure to the airline on further weakness.
Buxton, the £1.92bn Schroder UK Alpha Plus manager, says while the enforced groundings led to a sharp drop in BA shares over the past two trading days, the situation does not detract from its compelling investment case over the medium-term.
"As if dealing with a severe global downturn and striking cabin crew were not enough, British Airways is now faced with additional losses given the continued closure of the UK's airspace due to the volcanic ash drifting across Europe from Iceland," he says.
"Unsurprisingly their shares have dipped along with other airline stocks in recent days.
"History suggests that the market will look through any short term losses arising from 'one-off' events, given that the balance sheet and cash position are sufficiently robust to be able to deal with the situation."
While he says the losses are unwelcome, Buxton says BA could actually benefit from the crisis.
"This additional pressure on airlines across Europe will result in additional capacity leaving the market and hence, perversely, be good news for those airlines like BA which will survive to benefit from reduced capacity into the upturn," the manager adds.
"Ironically, prior to this latest weather disruption there were clear signs that traffic volumes were improving, with the premium long haul volumes so crucial to airline profitability in particular picking up."
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