Airlines

“The ETS issue...is turning into a trade conflict” said an Airbus spokesman after Europe’s biggest airlines and Airbus called on the EU to reconsider including the aviation in the European Emissions Trading Scheme (ETS). We look at how investors are poised towards this industry.

Stocks include: EasyJet Plc (LON:EZJ), Air France – KLM (EPA:AF), Deutsche Lufthansa AG (FRA:LHA), International Consolidated Airlines Group (LON:IAG), Ryanair Holdings Plc (LON:RYA)

With the debt downgrade out of the way, is now the time to invest in French companies? French listed large caps trade on multiples that are only two-thirds of the biggest U.S. companies (PE of 12 in France versus 19 in the U.S. according to Bloomberg). This means they are cheap if you think the outlook will improve. Some investors obviously do since, in aggregate, demand to borrow French large caps is down 6% over the past quarter.

Upbeat news from the recently formed International Airlines Group, which recently reported continued growth in passenger traffic and revenue, was over-shadowed by gloomy forecasts from the overall industry body. IATA reported that the positive measures being reported by the industry were based upon the optimistic outlook that marked the start of the year, but with business and consumer confidence back in decline, and high fuel prices and sluggish international trade, a weaker end to the year is expected.

A mismatch exists between consumers’ ratings of major US airlines and investors’ perceptions, which are clearly impacted by macro factors such as the price of oil and weak consumer sentiment. Stand out names include JetBlue Airways Corp (NASDAQ:JBLU), US Airways Group Inc (NYSE:LCC), United Continental Holdings Inc (NASDAQ:UAL) and Southwest Airlines Co (NYSE:LUV).

Message:

Southwest Airlines (NYSE:LUV) has dominated the news following reports that a three foot hole ruptured the fuselage mid-air during Flight 812. Bloomberg reports that Southwest has cancelled a further 100 flights today on top of large scale cancellations over the weekend, as inspectors have found small, subsurface cracks in two additional Boeing jets. In what is being described as metal fatigue in an aging fleet the media spotlight has returned to ask whether the airlines are doing enough to ensure people’s safety.

The last time airlines had to contend with oil priced over USD 100 was back in 2008. Despite a year of recovering demand and increasing ticket prices, airlines are reviewing their business models and hedging strategies to be able to profitably absorb their sensitivity to the price of oil. We look at investor sentiment towards; Deutsche Lufthansa Ag (ETR:LHA), Air France-KLM (EPA:AF), EasyJet (LON:EZJ), AMR Corp (NYSE:AMR) and United Continental Holdings (NASDAQ:UAL).