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
News
i100 In this video, the late actor Leonard Nimoy explains how he decided to use the gesture for his character
Arts and Entertainment
Secrets of JK Rowling's Harry Potter workings have been revealed in a new bibliography
arts + ents
News
Down-to-earth: Winstone isn't one for considering his 'legacy'
people
News
news
ebooks
ebooksA special investigation by Andy McSmith
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

SThree: HR Benefits Manager

£40000 - £50000 per annum + pro rata: SThree: SThree Group have been well esta...

Recruitment Genius: Office Manager / Financial Services

£30000 - £37000 per annum: Recruitment Genius: Established in 1999, a highly r...

Jemma Gent: Year End Accountant

£250-£300 Day Rate: Jemma Gent: Are you a qualified accountant with strong exp...

Jemma Gent: Management Accountant

£230 - £260 Day Rate: Jemma Gent: Do you want to stamp your footprint in histo...

Day In a Page

HIV pill: Scientists hail discovery of 'game-changer' that cuts the risk of infection among gay men by 86%

Scientists hail daily pill that protects against HIV infection

Breakthrough in battle against global scourge – but will the NHS pay for it?
How we must adjust our lifestyles to nature: Welcome to the 'Anthropocene', the human epoch

Time to play God

Welcome to the 'Anthropocene', the human epoch where we may need to redefine nature itself
MacGyver returns, but with a difference: Handyman hero of classic 1980s TV series to be recast as a woman

MacGyver returns, but with a difference

Handyman hero of classic 1980s TV series to be recast as a woman
Tunnel renaissance: Why cities are hiding roads down in the ground

Tunnel renaissance

Why cities are hiding roads underground
'Backstreet Boys - Show 'Em What You're Made Of': An affectionate look at five middle-aged men

Boys to men

The Backstreet Boys might be middle-aged, married and have dodgy knees, but a heartfelt documentary reveals they’re not going gently into pop’s good night
Crufts 2015: Should foreign dogs be allowed to compete?

Crufts 2015

Should foreign dogs be allowed to compete?
10 best projectors

How to make your home cinema more cinematic: 10 best projectors

Want to recreate the big-screen experience in your sitting room? IndyBest sizes up gadgets to form your film-watching
Manchester City 1 Barcelona 2 player ratings: Luis Suarez? Lionel Messi? Joe Hart? Who was the star man?

Manchester City vs Barcelona player ratings

Luis Suarez? Lionel Messi? Joe Hart? Who was the star man at the Etihad?
Arsenal vs Monaco: Monaco - the making of Gunners' manager Arsene Wenger

Monaco: the making of Wenger

Jack Pitt-Brooke speaks to former players and learns the Frenchman’s man-management has always been one of his best skills
Cricket World Cup 2015: Chris Gayle - the West Indies' enigma lives up to his reputation

Chris Gayle: The West Indies' enigma

Some said the game's eternal rebel was washed up. As ever, he proved he writes the scripts by producing a blistering World Cup innings
In Ukraine a dark world of hybrid warfare and murky loyalties prevails

In Ukraine a dark world of hybrid warfare

This war in the shadows has been going on since the fall of Mr Yanukovych
'Birdman' and 'Bullets Over Broadway': Homage or plagiarism?

Homage or plagiarism?

'Birdman' shares much DNA with Woody Allen's 'Bullets Over Broadway'
Broadchurch ends as damp squib not even David Tennant can revive

A damp squib not even David Tennant can revive

Broadchurch, Series 2 finale, review
A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower: inside the mansion of Germany's 'Bishop of Bling'

Inside the mansion of Germany's 'Bishop of Bling'

A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower