Industry analyst Andrew Monk of SA Capital believes travel’s big guns may be close to hitting a high watermark in terms of their stock market valuations
The travel industry from an investment bank point of view has had a spectacular year in 2013 – I could almost say vintage.
Share prices have risen by vast amounts pretty much across the board with IAG (or as we know it, BA) having basically doubled in price, easyJet up over 80%, Tui up 32% and the clear winner, Thomas Cook, up over 300%.
Even Ryanair, where Michael O’Leary has tried his hardest to smash his share price, is up nearly 25%. So – what a year, and those directors’ options and LTIPs will be looking rather good.
Thomas Cook had the advantage that it was starting from a very low base – in my words it had only just come out of hospital – but even so it is now competing well.
Ryanair were going great guns but then reality started to hit; people didn’t want to fly to an airport miles from where they were going and especially when there were doubts whether their aircraft had enough fuel to get there.
They also didn’t want to be charged absurd sums of money if they printed their tickets wrongly – in fact although Ryanair flies 80 million passengers annually, people didn’t want to fly with them but they were the only airline flying that route so they had no choice.
So what’s in store for 2014?
Last year I suggested these companies should raise more capital and look east – well, they didn’t listen to me, but I’d say the same again this year.
Actually I’m worried. The travel industry never just keeps having a good time – something always comes along and brings it back down to earth.
We know all the usual puns and gags so I won’t repeat them, but a black swan event will happen and then everything will change.
And there are some worrying signs as well as Ryanair’s issues.
More capacity is coming into the market, especially on long-haul flights (just look at the inexorable acquiring of aircraft by the Middle East carriers).
Aircraft operated in the UK which were new and had support from the manufacturers are getting older and support will end.
The consumer is still suffering from austerity and although the economy is getting better it is still hurting, and new routes and products can’t just keep being produced.
What if the oil price shoots up to $200? What if a new entrant comes in?
What if – dare I say it – we have a terrible accident of some sort, and what if the government sees these soaring share prices and thinks it will have another bite of the cherry?
I’m not saying any of this will definitely happen, but right now share prices are saying it is just blue sky out there and it will never rain again.
So my advice to anyone owning these shares is this: “You haven’t got a profit until you take it – so take it”.
I hope for the industry that 2014 is good but I do believe that by 2015 the share prices of the big five will be lower than where they start the year.
If I’m wrong, let’s be honest, no-one will mind as so much money was made in 2013 – a vintage year to remember.