Ironically, the turning-point has again been marked by a spectacular bankruptcy - that of the quoted Airbreak Leisure Group. In 1991, shares of a leading tour operator, Airtours, were the best-performing of the year, as profits soared after the collapse of International Leisure Group, whose Intasun subsidiary had been the No 2 company, after Thomson Travel, in the package tour industry. The group's collapse sharply reduced capacity, giving a dramatic boost to profitability for the remaining operators.
Readers of this column had the chance to benefit from much of that spectacular performance, since I made Airtours my nap selection in the sector at 336p. About a year later, they were still 336p, but that was after a three-for-one capitalisation issue giving holders four shares for every one held originally.
Inevitably that performance was too good to last. May 1992 saw the start of a savage bout of profit-taking, which was exacerbated when it became apparent that operators had been too optimistic about the 1992 holiday season and were having to cut prices sharply to sell holidays. The nadir for share prices came recently, when newspapers reported fears that overcapacity would continue to plague the industry during 1993. At one stage, Airtours' shares had virtually halved from their peak, and the less profitable Owners Abroad saw its shares plummet over a seven-month period to nearly a third of the year's high. It is now clear that the gloom has been overdone, especially in the case of Airtours, which has had a record year in 1992.
What appears to have happened is that there was some overcapacity in the summer - though nothing like as bad as some newspapers were suggesting. The publicity then encouraged holidaymakers to delay bookings in the hope of bargains, making for a poor trend in May and June. Finally, the peak school holiday booking season was a week or two late.
But since late July it has been more or less all systems go, with healthy bookings at close to full brochure prices, and respectable margins. By early July, it looked as though analysts' earlier profits forecasts of pounds 38m would have to be cut severely. But the consensus now for the year just ended is for profits of pounds 34m-pounds 35m, for a price-earnings ratio of under 10 and a yield of 3.5 per cent at 247p.
There should be further growth in the current year, as the three leading operators with 60 per cent of the market - Thomson, Airtours and Owners Abroad - are either freezing or cutting capacity for 1993.
Owners Abroad is not as tightly run nor as profitable, and looks a less exciting investment, even on a lower p/e. Nevertheless, at 63p a prospective p/e of six seems to take account of many uncertainties, and the shares have speculative appeal.
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