Our investment analyst, Graham Spooner looks into what the sector’s negative results mean for investors
Is more turbulence on the horizon for the airline sector?
With four of the main airline companies reporting losses over the last two weeks, including TUI and easyJet, investors will be asking what is going on in the sector as a whole and what it means for their investments.
Historically, the airline sector has been a volatile performer for investors, with the ever expanding network of airline routes and new entrants coming into the market to disrupt the norm. Recently, it has been subjected to additional headwinds and to demonstrate, the table below shows the return investors would have if they had invested in any of the main airlines a year ago.
Airline companies remain at the mercy of a number of external factors which they have little control over: terrorism, air traffic control strikes, volcanic eruptions, currency movements, oil prices, along with new events such as Brexit and people flying drones over airports. Many of these can lead to a squeezing of margins or wipe out profits in what is a cut-throat business.
This makes life difficult for management in their quest to grow the business especially with regards to upgrading their fleet. But demand for travel is not going to go away, so long-term investors in the sector should hopefully be aware that it will be a bumpy ride and is likely to remain so in the foreseeable future.
Don’t then be afraid to sell into strength or buy into weakness, as long-term visibility is distinctly lacking. Over the last 50 years, the world’s runways have been strewn with airlines that have failed to take off, resulting not only in losses for investors but often an extra few days in the sun.
If you're looking for more information on the Travel & Leisure sector, you can view the full range of companies and their share prices.
All information given including prices, yields and our opinion is correct at the time of publication. Our opinions on investments can change at any time and for our latest view please go to www.share.com. To understand how our Investment research team arrive at their views please read our Investment Research Policy.