James Moore: Putting money in airlines is just a flight of fancy

Investment View: Despite the ongoing concerns about the economy easyJet's planes are still full

Let's face it: the airline business hasn't been a terribly happy home for investors' money down the years. All that romance of flight malarky has tempted a fair number of people who really ought to have known better to part with their hard earned only to watch it disappearing down a deep, dark pit thanks to one of the industry's bouts of turbulence.

If there was ever really any romance, it's long gone now. The rise of the low-cost airline has seen to that. EasyJet, with its lurid, orange decor, and Ryanair, with all that blue and yellow and the impression it can give that the customer is an inconvenience: those two never pretended there was anything glamourous about their business.

Hook the punters with fares that promise a trip to somewhere sunny for less than a packet off Toffos, then squeeze them into a metal tube as tightly as they'll fit and squeeze their wallets at every opportunity.

Yesterday, the Office of Fair Trading, which has been looking at them with a jaundiced eye, gave them a slap, by ordering them to make admin charges for using debit/credit cards clear at the outset (rather than tacking a fat admin fee at the end of the booking process) and include it in the upfront fare.

At the same time, easyJet released some passenger numbers that suggested the above won't be the end of its world. The low-cost carrier reported passenger levels up 9.7 per cent to 5.43 million last month, compared with June 2011. It also revealed a 1.6 percentage point improvement in load factor, or the number of available seats sold, which rose to 89.9 per cent in June from 88.3 per cent last month. The rolling, 12-month passenger statistics to June are 7.5 per cent ahead of the previous year, at 57.36 million, while the load factor of 88.7 per cent is 1.6 percentage points better.

Despite the ongoing concerns over the economy – perhaps because of them – easyJet's planes are still full. Its shares have started to show that though. They're up by a third this year and now trade on 10.6 times forecast earnings for the year ending 30 September, while offering a prospective yield of just 2 per cent.

It is also worth noting that the company has been engaged in an ongoing battle with its biggest shareholder, founder Sir Stelios Haji-Ioannou, over issues such as buying new planes vs returning cash to shareholders, executive pay, and even chairman Sir Mike Rake's role at Barclays (Sir Stelios wants him fired).

Sir Stelios has a case on the first, he's right about the second (it is too high, and corporate governance watchdog Pirc has said so) and the same could be argued about the third (Sir Mike also chairs BT and has agreed to spend more time at Barclays so he's spread a little thin).

But his campaign, and his methods have gone down poorly in the City and could have a destabilising effect. If he wants his company back, he should really just bid.

At the same time fuel prices are an ever-present bugbear, and Douglas McNeill, an analyst at Charles Stanley, has argued that the market could be giving the company a bit too much credit for its move to attract business passengers. I'd take profits.

International Consolidated Airlines Group (British Airways and Iberia) appears to be in something of a hole. Spain, for a start, but the country's dire economy hasn't prevented some industrial unrest there (and remember how nasty the UK industrial dispute got). Meanwhile, chief executive Willie Walsh is currently spitting tacks about the UK's lack of aviation policy, and there's those fuel costs.

Strange to say there could be an opportunity long term. The acquisition of BMI should generate €100m (£79.8m) of operating profits by 2015, when €500m synergies from the merger of BA and Iberia are promised. New routes are being opened up, there is potential.

Potential yes, but we've been here before. If I wanted to take a punt I certainly wouldn't take it in this sector or with this company. With no earnings (this year) and no yield, it's a no no. Avoid.

Same for Flybe. The niche, low-cost regional airline has good control of costs, but it isn't making money and has been a disappointment in its first year since flotation. Avoid.

Which brings us to Ryanair. Its shares are even pricier than easyJet (12 times 2013 forecast earnings, but with a 3.3 per cent yield) and the odds seem against what is now its third bid for rival Aer Lingus.

All the same, its June passenger numbers were up 6 per cent, and the company has been a consistent, moneymaking machine. Michael O'Leary, its rambunctious chief executive, likes nothing better than to get up people's noses, and sometimes it seems as if the company is just being wilfully obnoxious.

But if there is anywhere in this most difficult of sectors to park your money (it pains me to say) it is with Ryanair. Hold.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
Life and Style
Suited and booted in the Lanvin show at the Paris menswear collections
fashionParis Fashion Week
News
i100
Arts and Entertainment
Kara Tointon and Jeremy Piven star in Mr Selfridge
tvActress Kara Tointon on what to expect from Series 3
Voices
Winston Churchill, then prime minister, outside No 10 in June 1943
voicesA C Benson called him 'a horrid little fellow', George Orwell would have shot him, but what a giant he seems now, says DJ Taylor
News
i100
News
An asteroid is set to pass so close to Earth it will be visible with binoculars
news
News
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Tax Assistant

Negotiable: Recruitment Genius: A Tax Assistant is required to join a leading ...

Recruitment Genius: Outbound Sales Executive - OTE £25,000

£16000 - £25000 per annum: Recruitment Genius: This is an exciting opportunity...

Ashdown Group: Java Developer / J2EE Developer - Watford - £45,000 - £47,000

£45000 - £47000 per annum + bonus + benefits: Ashdown Group: Java Developer / ...

Ashdown Group: Marketing Product Manager - (Financial Services) - SW London

£35000 - £38000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

Day In a Page

Syria crisis: Celebrities call on David Cameron to take more refugees as one young mother tells of torture by Assad regime

Celebrities call on David Cameron to take more Syrian refugees

One young mother tells of torture by Assad regime
The enemy within: People who hear voices in their heads are being encouraged to talk back – with promising results

The enemy within

People who hear voices in their heads are being encouraged to talk back
'In Auschwitz you got used to anything'

'In Auschwitz you got used to anything'

Survivors of the Nazi concentration camp remember its horror, 70 years on
Autumn/winter menswear 2015: The uniforms that make up modern life come to the fore

Autumn/winter menswear 2015

The uniforms that make up modern life come to the fore
'I'm gay, and plan to fight military homophobia'

'I'm gay, and plan to fight military homophobia'

Army general planning to come out
Iraq invasion 2003: The bloody warnings six wise men gave to Tony Blair as he prepared to launch poorly planned campaign

What the six wise men told Tony Blair

Months before the invasion of Iraq in 2003, experts sought to warn the PM about his plans. Here, four of them recall that day
25 years of The Independent on Sunday: The stories, the writers and the changes over the last quarter of a century

25 years of The Independent on Sunday

The stories, the writers and the changes over the last quarter of a century
Homeless Veterans appeal: 'Really caring is a dangerous emotion in this kind of work'

Homeless Veterans appeal

As head of The Soldiers' Charity, Martin Rutledge has to temper compassion with realism. He tells Chris Green how his Army career prepared him
Wu-Tang Clan and The Sexual Objects offer fans a chance to own the only copies of their latest albums

Smash hit go under the hammer

It's nice to pick up a new record once in a while, but the purchasers of two latest releases can go a step further - by buying the only copy
Geeks who rocked the world: Documentary looks back at origins of the computer-games industry

The geeks who rocked the world

A new documentary looks back at origins of the computer-games industry
Belle & Sebastian interview: Stuart Murdoch reveals how the band is taking a new direction

Belle & Sebastian is taking a new direction

Twenty years ago, Belle & Sebastian was a fey indie band from Glasgow. It still is – except today, as prime mover Stuart Murdoch admits, it has a global cult following, from Hollywood to South Korea
America: Land of the free, home of the political dynasty

America: Land of the free, home of the political dynasty

These days in the US things are pretty much stuck where they are, both in politics and society at large, says Rupert Cornwell
A graphic history of US civil rights – in comic book form

A graphic history of US civil rights – in comic book form

A veteran of the Fifties campaigns is inspiring a new generation of activists
Winston Churchill: the enigma of a British hero

Winston Churchill: the enigma of a British hero

A C Benson called him 'a horrid little fellow', George Orwell would have shot him, but what a giant he seems now, says DJ Taylor
Growing mussels: Precious freshwater shellfish are thriving in a unique green project

Growing mussels

Precious freshwater shellfish are thriving in a unique green project