In turbulent times some travel cheer!

In post-Brexit gloom and the rise of attacks in Europe Sally White goes in search of positive travel news

Travel groups may not yet be ready to be optimistic about their industry, but stock markets are. Investors need to jump on trends early to make money and brokers are beginning to tell positive stories on some airlines, at least, and cruise.  And through the Brexit gloom and despair at the rise in terror, the UK Travel & Leisure stock market index has risen in recent weeks.

Two airline companies currently standing out as winners, in analysts' views, are also high up on technical and marketing innovation. Both are in the low-cost sector - Ryanair and Jetblue.

What makes JetBlue look attractive at this moment? The US tipsters, The Street, list its “revenue growth, impressive record of earnings per share growth, compelling growth in net income, expanding profit margins and good cash flow from operations.” To name just a few!

JetBlue's pace of innovation and marketing have impressed the airline industry. US aviation research group CAPA comments that it is now two years ago that JetBlue debuted its Mint premium product which “was a bold move for a low-cost, hybrid-like North American airline". It adds that the company "is the only low cost airline in the Americas that offers a dedicated premium product, and the success of Mint has even surprised JetBlue’s senior management". 

Most recently it has strengthened its access to new technology by developing Silicon Valley-based JetBlue Technology Ventures, an incubator fund to invest globally in start-up companies "across the intersection of technology, travel and hospitality". The latest move is a partnership with Cockpit Innovation Hub, the venture capital arm of El Al Israel Airlines - Israel is renowned worldwide for its innovation in digital technology.  Ideas being looked at range from fuel consumption to an increase cyber security.

Ryanair has won praise from broker Liberum even though "Brexit turbulence creates a more challenging environment”. In Liberum's view " its exposure to the UK is manageable, it has the ability to grow elsewhere in Europe, and past downturns have accelerated market share gains."

While the broker has cut its profit forecasts to reflect the more cautious economic outlook, it is reiterating a BUY recommendation on Ryanair.  As an indication of its optimism it believes the shares could rise by a third.

"Sterling sales, a proxy for sales in the UK and hence UK outbound demand, now account for only 25-30% of total revenue. UK routes probably account for a larger share of revenue, since there will be revenue associated with tickets sold outside the UK on flights into the UK. A weaker pound may deter UK outbound travel, but it ought to stimulate inbound tourism," it says.

Ryanair has recently outlined its key areas of focus for the third yearof its ‘Always Getting Better’ programme . These range from a new ‘Leisure Plus’ bundle fare, including reserved seats, priority boarding and a 20 kg bag allowance, an improved ‘Business Plus’ service with more flexible ticketing, more fast-track locations and auto check-in.  On top of those are travel ‘Extras’ bookable in the mobile app, such as seat upgrades, fast-track purchases and parking. A ‘one flick’` payment system is being added to the app to simplify mobile payments.

Having ignored anything digital for years, Ryanair now goes for it in a big way and there are 200 tech specialists in its Ryanair Labs. Chief tech officer John Hurley was reported telling a FutureScope conference in Dublin last month: "We are now a technology company and all we want to do for customer experience moving forward is maintain the price, improve the choice and the digital experience.”

From the stage, Hurley issued an open invitation to any entrepreneur to get in touch with Ryanair if they had a novel idea to improve the company’s operation.

But, entrepreneurs should be warned - anything ‘big data’ is out: “Nothing grandiose, nothing special". He is a ‘small data’ man, saying, according to newspaper The Journal, that over the past three months alone ‘small data’ projects had saved the company €20 million at the bottom line.

‘small data’ projects had saved the company [Ryanair] €20 million at the bottom line

Admiration of Ryanair's business model is reflected in its stock market rating - which is two or even three times that of Air France-KLM, Lufthansa, EasyJet or British Airways' owner IAG. As Liberum says, the market view is that while economic downturn might bring some short-term pain to Ryanair, it will open up opportunities. The airline's "best aircraft deals have come when the industry has been in crisis".

Less optimism

On other airlines, such as Lufthansa, Liberum is less ready to be optimistic. "Lufthansa's home markets may be one step removed from Brexit risk, but European GDP risks have risen and British Airways has received a competitiveness boost from sterling's devaluation," it notes.  What is more, it adds, " Lufthansa’s passenger traffic statistics have shown unexpected weakness so far this year."

But real concern is shown on Air France-KLM, which seems beset on all sides. As Liberum's analyst sees it: "The downside risks to GDP growth and air travel demand have increased, and it is unclear if industry capacity will respond. We anticipate continued downward pressure on unit revenues. There remains also be an overhang from potential industrial action. New leadership may help reset the relationship with the unions, but may also delay more radical reforms."

Back in the UK-US travel sector, a much more cheerful view is taken on cruise, especially Carnival, a group whose recent share price rise is a factor in those gains in the Travel & Leisure index. That follows remarks by CEO Arnold Donald last month when reporting bookings well ahead and at higher prices than last year: "This is shaping up to be another strong year."

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