Investing Comment |
|
Your Money > Investing Comment Articles > Carry on abroad
|
By Richard Hunter, Hargreaves Lansdown
With concerns remaining around how widespread swine flu may become and a global recessionary environment, the travel industry certainly has its work cut out. And yet, as the holiday season slowly looms into view on the horizon, prospects for the UK 's holiday companies are holding up surprisingly well. Within the FTSE 100, the three representatives – Carnival, Thomas Cook and TUI Travel, have put in some robust performances. Sector consolidation speculation has also helped. However, British Airways continues to have problems of its own.
Carnival combined with P&O Princess Cruises in 2003 and is currently the world's largest cruise ship operator. Its recent market update showed a 10% rise in first quarter profits, beating expectations, and helped along by lower oil costs and higher volumes. This did, however, come at a cost and whilst booking numbers were up, these were at significantly lower prices. The company observed that “We had very, very strong volumes - at lousy rates.” The company is dual listed in the US and UK, and its exposure to consumers in both those countries has been a concern around the shares. Even though the company is currently conserving cash having cut the dividend, the overall market view of the company is currently a weak hold. The shares have, nonetheless, risen 27% over the last three months (FTSE100 rose 6% in the same period). Thomas Cook is Europe 's second largest travel firm and is a combination of the UK company MyTravel and KarstadtQuelle of Germany. It also recently provided a trading update, observing that the combined effects of a weak pound and the recession has resulted in UK travellers avoiding the Eurozone for holiday destinations. It cited Turkey (which still has its own currency) as a destination of choice, with summer bookings up by 32% - compared to down 25% for Spain . It has however, reduced the number of holidays available and also benefited from the demise of XL Leisure in September last year. As such, its outlook is regarded as reasonably promising by analysts and the general market consensus is that the stock is a cautious buy. Over the last three months the shares have comfortably outperformed the wider market, rising by some 30%, a stellar performance given current trading conditions. TUI Travel was formed in 2007 through a merger of Germany 's TUI and the UK 's First Choice. It has also recently reported first quarter figures, which showed a reduction in its loss to £35 million from a previous £63 million. To put this into context, however, it should be remembered that tour operators traditionally make a loss in the first half of the year as the benefits of the key summer period do not wash through until the second half. TUI also reiterated its determination to focus on costs, and reported that it had increased its merger-related cost cutting target to £200 million per year. The general market view for the shares also remains a cautious buy, whilst the shares have performed very well of late. Over the last six months, the shares have gained 34% whilst the wider FTSE100 has added 6%. For British Airways, the picture is less optimistic. Industry body IATA recently observed that the airline industry is in “intensive care”, adding that “The relief of lower fuel prices is overshadowed by falling demand and plummeting revenues.” For BA in particular, these are difficult times. February's passenger numbers were down over 8%, including an enormous 20% decline in “premium cabin” customers, long since a central core to the BA strategy. The company has recently announced that operating losses are likely to be the order of the day for the next two years at least. Even so, the possibility of a merger with Spain 's Iberia could be the source of some solace to investors. Given that the shares have fallen 29% over the last year and with BA's traditional doggedness in mind, the overall market consensus just nudges towards a cautious buy. (Please note – British Airways full-year results are due 22nd May). Richard Hunter is Head of Equities at Hargreaves Lansdown Useful links: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||