European airline shares defy the turbulence to keep on climbing higher

Despite the outrage British Airways faced when its yet to be explained computer meltdown ruined the plans of thousands of travellers stranded at airports for a UK bank holiday, the shares of its IAG owner have barely flickered.

Playing catch-up with the Madrid stock exchange, IAG shares in London fell only 2.5%. Having soared 36% since the start of the year and now up 15% from this time last year, the BA-Aer Lingus-Iberia-and Veuling group is valued at £12.53bn (€14.4bn). 

British Airways flew “through the turbulence”, said Chris Beauchamp, chief market strategist at online broker IG, who said the modest share price fall barely ruffled investors focused on the airline’s “strong” operating margin and a still-appealing dividend yield.

Analysts note that the costs of the IT snarl up and any compensation bill as demanded by UK prime minister Theresa May would barely dent BA’s profits. 

But you would be forgiven for thinking that something odd is happening in the notoriously “cyclical” airline industry (airline shares were known as being hugely dangerous to the wealth of shareholders).

Despite the looming challenges of Brexit and huge gains posted this year, European airline shares nonetheless climbed to new heights.

Over at Ryanair, Michael O’Leary was able to announce an additional lure by his cash-generating machine of an airline to buy back €600m of its own shares. 

And, having turned its back on ever paying regular dividends, the airline may yet consider returning cash to shareholders, as it has done in the past.

On the day it delivered on-target full-year earnings, Ryanair shares were up over 2%. And up 25% this year and 29% higher from a year ago, the airline is valued at €22bn. Despite the huge share price gains, Ryanair is still not short of fans.

“If I was buying a European airline share, it would be Ryanair because of its robust business model,” Loizos Heracleous, professor of strategy at Warwick Business School, told the Irish Examiner.

At a market value of €8bn, Lufthansa is a relative minnow. But even its shares are up almost 40% from a year ago—with all the gains secured in the first five months this year.

Meanwhile, Alitalia and Air Berlin have not delivered the investment returns that their investor Ethihad secured when it cashed out its stake in Aer Lingus when IAG completed the purchase of Aer Lingus two years ago. 

Alitalia — the traditional Italian flag carrier — slid into bankruptcy earlier this month. 

Etihad is also close to hiring advisers to look into strategic options for the close to 30% it owns of Air Berlin, including a potential sale.

But even shares in the struggling low-cost Air Berlin have taken off this year. Buoyed by acquisition hopes, Air Berlin, whose shares has climbed 55% since the start of the year, is valued at €107.5m.


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