View more on these topics

Flight path

Fund managers are cautious about investing in airlines following changes to security in the wake of the recent alleged terrorist plot.

Hand baggage changes will increase costs particularly for budget carriers,which rely on high passenger volumes and quick turnover.

Royal London Asset Management senior UK equities fund manager Bradley Mitchell says the changes will drive up costs.

Passengers flying from the UK can only take luggage the size of a laptop bag on board. Mitchell says the changes will deter people travelling short distances who are used to packing all they need for a few days and taking their case on board.

Mitchell says: “It is going to affect passenger numbers for city breaks.”

RCM UK fund manager Trevor Green says the big question facing budget carriers is whether the carry-on changes are here to stay.

He says: “For passengers on long-haul flights, delays of an hour or two are just a fact of life but for someone going from London to Edinburgh on business for the day, this is a real pain,”

Ryanair shares have been under pressure since the terrorist threats and the ensuing airport chaos. Its shares fell by 5 per cent in the five trading days after heavy security measures were put in place across airports.

Airline industry analyst Andrew Fitchie at brokerage company Collins Stewart has put the cost of the disruption to British Airways at around 50m, the cost to EasyJet of 10m and the cost to Ryanair at 2.5m.

Fitchie says the security measures are likely to reduce the number of flights that budget carriers can schedule in a day.

He says: “They work on quick turn-rounds but you do not need many more minutes added on each turn-round before you are out of daylight hours and enter flight restriction times.”

He adds that the long- term impact to British Airways is limited.

Ryanair chief executive Michael O’Leary is threatening to sue the Government for compensation unless airport security measures return to normal.

EasyJet is to begin charging passengers who check in more than one bag from September 1.

Chief executive Andy Harrison says the new security arrangements are expected to remain for the foreseeable future.

He says: “Passengers need to think a little more carefully about how much luggage they take and that is what these changes are designed to do. They will speed up check-in and security and make the airport experience better for everyone.”

Christows head of research Jim Wood-Smith was never a believer in the discount airlines’ minimal luggage strategy. He says: “I am not convinced that their strategy works. When you go on a holiday, you will have bags with you.”

He says Christows is underweight in investment in airlines but he believes the discount airlines are in a growth market while the national carriers are in decline.

“Everything has a price but I do not think the discount carriers are very cheap at the moment,” he adds.

Mitchell says RLAM, which has 25bn under management, has avoided airline stocks, largely because of the rising cost of oil.

He says: “Many of the problems that the airlines face are going to be here this year, next year and the year after. We are not going to see the price of oil back at $40 a barrel for a long time. In terms of terrorism, you only have to be unlucky once.”

Shares in most travel and leisure companies took a hit in the days following revelations of the alleged terrorist plot but most shares have since recovered or even shot higher.

Green says he looked for possible beneficiaries following the problems but made no changes to his investment strategy. “We decided the benefit was too marginal,” he says.

Lloyds TSB Financial Markets chief economist Trevor Williams says some areas within the travel and leisure sector have enormous potential. He says: “The aerospace market is booming.” He says growth in emerging markets such as China and India are providing growth opportunities for manufacturers of airplanes and airplane parts.

He says: “This terrorist plot has affected the UK and the US but there is a bigger world out there. This is not going to end travel.” He adds that military spending is also boosting earnings for manufacturers.

Last week, the share price of BAE Systems surged after it signed a deal to sell 72 Typhoon jet planes to Saudi Arabia.

Williams admits the rising oil price is a problem for airlines but says it will merely “determine the ticket price, people will still be flying.”

He adds: “Investors have to look at the fundamentals and use the scares as a way to seek value and then ride out the turbulence.”

Axa Investment Managers strategist Axel Bott, says the utilities sector could benefit as investors shift to less risky investments.

He also believes that gold stocks could prove popular because they act as a hedge against geopolitical turmoil.

Mitchell is bearish on most of the travel and leisure sector, with the exception of travel and holiday group, First Choice.

He says: “It has a strong business model, good management and they proved after 9/11 that they have the ability to flex their business model to adapt to even the most severe challenge.”

Mitchell says the group has moved into high-margin niche markets such as adventure holidays, which is proving successful.

He concludes: “British Airways already has to contend with rising oil prices, a big pension deficit and labour relations issues, without the additional headache of a renewed terrorist threat.”


TUC warn of new employer NPSS lobbying risk

An ‘under the radar’ lobbying campaign headed by retail and hospitality firms could harm the pensions of one in six workers, warns the Trade Union Congress.The TUC says it has learnt major employers are lobbying ministers to introduce a waiting period of one year before employees in a new job gain compulsory employer contributions to […]

Hudson hits back at concerns over wrap client data

Tenet chief executive Simon Hudson says advisers having to share client data with wrap providers is no different from any other financial services product.Hitting back at claims from Bankhall chief executive Peter Mann last week that there is a risk wrap providers will use this data to approach clients direct, Hudson says it is nonsense […]

Abbey reveals high cost of remortgaging

Abbey estimates that the average upfront cost of remortgaging to a new deal is over 1,000.The lender says that when you take into account booking and valuation fees, the cost is around 1100.Abbey says assuming a borrower were to remortgage 12 times during the course of their mortgage, they would be paying 13,596 in fees […]

ABI says sales of life and pensions up 25%

Sales of new life and pension products rose by almost 25 per cent in the second quarter of the year compared with the first quarter, according to latest figures from the ABI. The ABI says A-Day has helped to drive record sales of 3.9bn in the second quarter, up by 24.5 per cent on the […]

Cricket - thumbnail

England vs Australia: pensions

Well, the cricket season is here, and England and Australia are stepping up to the wicket. Although we compete with each other in the sporting world, when it comes to pensions, Australia’s pension programme is held up as a model for our auto-enrolment initiative. Auto-enrolment was introduced because people weren’t saving enough into their pensions, and it is still early days but signs are positive. However, in Australia, saving into a pension is compulsory, and in fact employers are the ones who have to pay in. Employees in Australia can make additional contributions into their pensions, but they don’t have to. Should the onus be on the employer or employee to save? Well in the UK we think it’s both, but to get ‘adequate’ savings for retirement it’s the employee who has to pay more in.


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm