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
Voices
There will be a chance to bid for a rare example of the SAS Diary, collated by a former member of the regiment in the aftermath of World War II but only published – in a limited run of just 5,000 – in 2011
charity appealTime is running out to secure your favourite lot as our auction closes at 2pm tomorrow
Arts and Entertainment
James May, Jeremy Clarkson and Richard Hammond in the Top Gear Patagonia Special
tv
News
Claudia Winkleman and co-host Tess Daly at the Strictly Come Dancing final
people
Arts and Entertainment
Caroline Flack became the tenth winner of Strictly Come Dancing
tvReview: 'Absolutely phenomenal' Xtra Factor presenter wins Strictly Come Dancing final
PROMOTED VIDEO
News
Elton John and David Furnish will marry on 21 December 2014
people
Sport
SPORT
News
people
Life and Style
A still from the 1939 film version of Margaret Mitchell's 'Gone with the Wind'
life
Arts and Entertainment
J Jefferson Farjeon at home in 1953
booksBooksellers say readers are turning away from modern thrillers and back to golden age of crime writing
Sport
Amir Khan is engaged in a broader battle than attempting to win a fight with Floyd Mayweather
boxing Exclusive: Amir Khan reveals plans to travel to Pakistan
News
Stacey Dooley was the only woman to be nominated in last month’s Grierson awards
mediaClare Balding and Davina McCall among those overlooked for Grierson awards
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
News
Twitchers see things differently, depending on their gender
scienceNew study shows that birdwatching men have a lot in common with their feathered friends...
Arts and Entertainment
British actor Idris Elba is also a DJ and rapper who played Ibiza last summer
film
News
i100
Arts and Entertainment
Christopher Biggins as Mrs Smee in Peter Pan
theatreHow do the men who play panto dames get themselves ready for the performance of a lifetime?
News
i100
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

Carlton Senior Appointments: Private Banking Manager - Intl Bank - Los Angeles

$200 - $350 per annum: Carlton Senior Appointments: Managing Producer – Office...

Carlton Senior Appointments: San Fran - Investment Advisor – Ind Advisory Firm

$125 - $225 per annum: Carlton Senior Appointments: San Fran - Investment Advi...

Sheridan Maine: Commercial Finance Manager

Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Sheridan Maine: Regulatory Reporting Accountant

Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Day In a Page

The week Hollywood got scared and had to grow up a bit

The week Hollywood got scared and had to grow up a bit

Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

Panto dames: before and after

From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
Thirties murder mystery novel is surprise runaway Christmas hit

Thirties murder mystery novel is surprise runaway Christmas hit

Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

Anne-Marie Huby: 'Charities deserve the best'

Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
The botanist who hunts for giant trees at Kew Gardens

The man who hunts giants

A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there
The 12 ways of Christmas: Spare a thought for those who will be working to keep others safe during the festive season

The 12 ways of Christmas

We speak to a dozen people who will be working to keep others safe, happy and healthy over the holidays
Birdwatching men have a lot in common with their feathered friends, new study shows

The male exhibits strange behaviour

A new study shows that birdwatching men have a lot in common with their feathered friends...
Diaries of Evelyn Waugh, Virginia Woolf and Noël Coward reveal how they coped with the December blues

Famous diaries: Christmas week in history

Noël Coward parties into the night, Alan Clark bemoans the cost of servants, Evelyn Waugh ponders his drinking…
From noble to narky, the fall of the open letter

From noble to narky, the fall of the open letter

The great tradition of St Paul and Zola reached its nadir with a hungry worker's rant to Russell Brand, says DJ Taylor
A Christmas ghost story by Alison Moore: A prodigal daughter has a breakthrough

A Christmas ghost story by Alison Moore

The story was published earlier this month in 'Poor Souls' Light: Seven Curious Tales'
Marian Keyes: The author on her pre-approved Christmas, true love's parking implications and living in the moment

Marian Keyes

The author on her pre-approved Christmas, true love's parking implications and living in the moment
Bill Granger recipes: Our chef creates an Italian-inspired fish feast for Christmas Eve

Bill Granger's Christmas Eve fish feast

Bill's Italian friends introduced him to the Roman Catholic custom of a lavish fish supper on Christmas Eve. Here, he gives the tradition his own spin…
Liverpool vs Arsenal: Brendan Rodgers is fighting for his reputation

Rodgers fights for his reputation

Liverpool manager tries to stay on his feet despite waves of criticism
Amir Khan: 'The Taliban can threaten me but I must speak out... innocent kids, killed over nothing. It’s sick in the mind'

Amir Khan attacks the Taliban

'They can threaten me but I must speak out... innocent kids, killed over nothing. It’s sick in the mind'
Michael Calvin: Sepp Blatter is my man of the year in sport. Bring on 2015, quick

Michael Calvin's Last Word

Sepp Blatter is my man of the year in sport. Bring on 2015, quick