Demand slows for budget airlines – is it a good time to invest?
Budget airlines easyJet and Ryanair are in for a bumpier ride now that demand among consumers seems to be slowing
Shares in easyJet fell by 7% last week after the budget airline posted a first-half loss that was slightly larger than expected, and announced the departure of CEO Johan Lundgren, says Karen Gilchrist on CNBC. Pre-tax losses came in at £350m for the six months to 31 March 2024.
Lundgren claims that the company has “positive momentum” coming into the summer travel season, with consumers still inclined to spend on holidays, “particularly to classic European destinations such as Spain, Portugal and Turkey”. The fact that Lundgren is being replaced at the top by finance boss Kenton Jarvis implies “a smooth passing of the baton and no change to corporate strategy”, says AJ Bell’s Russ Mould.
Combined with the management’s confidence that the company is on track to meet its medium-term target of annual pre-tax profits of £1bn, the news should have been “reassuring”. But in this case it was “just not enough to please the market”, with the negative reaction from shareholders suggesting that the status quo was exactly what they didn’t want. They were clearly hoping an outsider would come in and “shake things up”.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Which budget airlines are taking a hit?
It’s easy to understand investors’ mixed feelings about Lundgren and his team, says Lex, the investment column in the Financial Times. His time at the top was “rarely without drama”. EasyJet had to raise equity twice to get through the pandemic, while he faced questions over his strategy, including whether he “should have been more aggressive in a grab for market share post-pandemic”.
Still, Lundgren deserves credit for leaving easyJet in a “robust state”. It should also “avoid the worst of the snarl-up in aeroplane deliveries that will constrain capacity in the next few years”, and should support higher ticket prices.
EasyJet is not the only airline experiencing pockets of turbulence.
Shares in rival Ryanair have fallen back from €21 (£18) last month to around €18 (£15), says Alistair Osborne in The Times. The fall comes after Ryanair admitted that it now thinks summer fares are going to be “softer” than either Michael O’Leary or the market previously expected. Ryanair is also set to suffer from more aircraft delivery delays from Boeing, which could prove costly given that the airline has already hired extra crew members. It seems that customers’ “insatiable demand” for flights is finally cooling, says Hargreaves Lansdown’s Susannah Streeter.
While consumers have been “ring-fencing budgets to satisfy their wanderlust”, there are now signs that many more are “starting to baulk at higher prices”, with flight prices having risen by a fifth over the past year. And “recessionary winds” around Europe, with economies set to remain “highly sluggish” this year, mean that people may remain “cautious”. Still, a bout of “washout weather in key markets” may still prompt spurts of seat-buying to sunnier destinations.
This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.
Sign up to Money Morning
Our team, led by award winning editors, is dedicated to delivering you the top news, analysis, and guides to help you manage your money, grow your investments and build wealth.
Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.
He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.
Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.
As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.
Follow Matthew on Twitter: @DrMatthewPartri
-
Christmas at Chatsworth: review of The Cavendish Hotel at Baslow
MoneyWeek Travel Matthew Partridge gets into the festive spirit at The Cavendish Hotel at Baslow and the Christmas market at Chatsworth
By Dr Matthew Partridge Published
-
Tycoon Truong My Lan on death row over world’s biggest bank fraud
Property tycoon Truong My Lan has been found guilty of a corruption scandal that dwarfs Malaysia’s 1MDB fraud and Sam Bankman-Fried’s crypto scam
By Jane Lewis Published
-
Why undersea cables are under threat – and how to protect them
Undersea cables power the internet and are vital to modern economies. They are now vulnerable
By Simon Wilson Published
-
Warren Buffet invests in Domino’s – should you buy?
What makes Domino's a compelling investment for Warren Buffet's Berkshire Hathaway, and should you buy the UK-listed takeaway pizza chain?
By Dr Matthew Partridge Published
-
4Imprint makes a strong impression – should you buy?
4Imprint, a specialist in marketing promotional products, is the leader in a fragmented field
By Dr Mike Tubbs Published
-
Invest in Glencore: a cheap play on global growth
Glencore looks historically cheap, yet the group’s prospects remain encouraging
By Rupert Hargreaves Published
-
Should you invest in Trainline?
Ticket seller Trainline offers a useful service – and good prospects for investors
By Dr Matthew Partridge Published
-
Key takeaways from the MoneyWeek Summit 2024: Investing in a dangerous world
If you couldn’t get a ticket to MoneyWeek’s summit, here’s an overview of what you missed
By MoneyWeek Published
-
DCC: a top-notch company going cheap
DCC has a stellar long-term record and promising prospects. It has been unfairly marked down
By Jamie Ward Published
-
How investors can use options to navigate a turbulent world
Explainer Options can be a useful solution for investors to protect and grow their wealth in volatile times.
By James Proudlock Published