Bottom Line: High-flyer brought to earth

A DROP of 15p in Airtours' shares seemed a harsh response to sound interim figures.

While the loss before tax for the six months to 31 March rose smartly from pounds 7m to pounds 16m, the seasonality of the business makes this a good omen. With bookings up 41 per cent - albeit about half due to acquisitions - it is growing much faster than its peers, prompting analysts to upgrade forecasts.

But the City was more worried about Airtours' warning that demand for accommodation in Mediterranean hotspots was beginning to outstrip supply, pushing up room rates.

Airtours hopes to combat that by buying its own accommodation. It already has enough for 16 per cent of packages and aims to increase that to 20 per cent. The 10 per cent devaluation of the Spanish peseta against sterling should mask cost increases, while it hopes to be able to squeeze price increases out of consumers.

But Airtours' acquisitive tendency raises eyebrows, and the British customer base - buoyant as recession lifts - shows signs of long-term maturity.

Yesterday, the shares were trading on a prospective p/e ratio of 11.5 times. The income attraction, with the shares yielding 2.7 per cent, is small compensation. But the weight of negative sentiment against the company and its industry may mean that the shares will meander from here.

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