Stock markets began the year on a high and have kept on climbing, with major travel companies among the best performers. Andrew Monk forecasts what may follow
The last few months have seen the equity prices of travel companies take off. Some are now flying higher than the aircraft they operate.
Tui Travel and Thomas Cook have seen their share prices rise exponentially, easyJet seems to just go higher and higher, and IAG has been one of the best performers in the FTSE100 in January.
Now if I was chief executive of one of these companies (sadly, I don’t think I’ll ever be asked) I would be thinking “How can I take advantage?”.
My answer would be to think about tapping the market and raising more money – be it to reduce debt, to prepare for a rainy day that will come, or maybe for an acquisition.
I have written before about Thomas Cook and suggested in early December that the share price was likely to jump, arguing: “The patient is out of hospital and in the gym.”
Well Cook seems to be pumping iron now. It would not surprise me at all if the company decides to raise a large sum of money to reduce its debt position and strengthen its ability to grow. In the current market, raising funds of £100 million or £200 million could be on the cards.
Over at Tui Travel, what Peter Long has achieved is, frankly, remarkable. He has shown he is the CEO to beat – in football terms, he is Sir Alex Ferguson.
We learned last week that Long’s German parent Tui AG doesn’t want to re-unify the companies. Maybe the alternative is to find a major deal and see if Tui AG wants to follow or dilute its share?
A major deal in Europe would probably be tricky, but with growth in the BRIC countries so strong maybe that is where a deal could be found.
I now travel almost monthly to Hong Kong and Singapore for business and can tell you the aircraft are always full – which leads me to thinking about easyJet.
EasyJet should just keep growing organically according to the low-cost model, or should it?
Ryanair is trying to acquire Aer Lingus and Air Southwest, the US grandfather of low-cost airlines, has made acquisitions.
EasyJet could buy another carrier (as it did in the past when it bought Go from British Airways). But if I was CEO (as clearly I never will be) I’d be tempted to look east.
There are two ways that could work. The first would be to jump away from the point-to-point concept and consider a hub and spoke network with a link to an Asian carrier which easyJet could help develop into a low-cost airline across Asia.
The second would be to just buy and build an Asian carrier.
Finally let’s look at IAG, where Willie Walsh has worked his magic: surely some more consolidation could be appealing (Willie will be regularly presented with ideas).
IAG’s Oneworld alliance is strong and Qatar Airways joining is a good move. But I’m sure Willie watches one of his other partners, Cathay Pacific, and wishes he could have some of the growth it gets from Asia (if you are flying to Hong Kong in business class, Cathay’s new service on the 777 is outstanding).
So well done if you own shares in the travel companies – you have done well. But look out for the cash calls and remember airline stocks, just like aircraft, always come back to earth.
Andrew Monk is chief executive of London-based investment bank VSA Capital