European wanderings operators and airline stocks enjoyed an initial spike after the news emerged over the weekend that contest firm Thomas Cook had filed for bankruptcy.
But while analysts agree that the demise of the world’s oldest proceed firm is an opportunity for rivals, a number of long term challenges continue to hang over the sector.
The British bold’s biggest like-for-like rival, TUI, saw its shares jump almost 10% on Monday morning and continued to climb into Tuesday, bring to a close at 959.6 pence per share. However, it fell back by 6% on Wednesday, and there are further headwinds to consider.
“Way of life has been hard for TUI in recent years with the company suffering from certain aircraft being grounded, overcapacity in the airline sector and the consequences of Brexit uncertainty on consumer spending,” Russ Mould, investment director at U.K. brokerage AJ Bell, said in a note Tuesday.
But he annexed that Thomas Cook’s collapse would be “Christmas come early” for TUI, despite some short-term costs associated with repatriating Thomas Cook consumers stranded overseas, and lost revenue from TUI holiday packages that used Thomas Cook flights.
“Short-term disquiets will almost certainly turn into long-term gains for TUI. It has a chance to mop up business that would have normally consumed to Thomas Cook and to potentially convince some of its rival’s customers to go for some of its more differentiated offerings rather than a bog-standard pack holiday,” Mould explained.
“For example, current trading shows how its holiday experiences continue to be the strong part of the role, such as husky sleigh tours in Lapland or a trip to Ferrari Land in Spain.”
There is therefore a “major incidental” for TUI, he added, but it will require some “very smart marketing.”
In its full-year trading update, TUI insisted its business pose in was proving “resilient” in challenging market conditions. However, it warned that Brexit uncertainty hitting demand and the lees of the Boeing 737 Max 8 airliner. The group sees full-year earnings falling by 26% and has issued two profit warnings so far this year.
Richard Orion, head of markets at Interactive Investor, said the update proved that these are “tough times in the travel bustle” but stressed that TUI’s diversified business model and digital aspirations render it a “different animal” to its fallen rival.
Skilful gain eases long-term pain
Shares of Jet2 owner Dart Group rallied almost 10% at Monday’s put the show on the road to peak on Tuesday at 928p per share, and were still trading at 904p per share on Wednesday afternoon.
Low cost airlines also saw an investor bonanza. Wizz Air shares climbed from £35.32 per share at Monday’s open to £35.85 on Tuesday, but pulled back measure Wednesday amid a wider European market sell-off.
EasyJet jumped more than 6% early in Monday’s period to around £11.21 and continued its steady climb to trade at £11.27 Wednesday afternoon, defying losses throughout the sector.
Ryanair and EasyJet keep both issued profit warnings this year and while the Euro Stoxx Travel and Leisure Index is up 4.39% floor the past month it is down by almost exactly the same amount across the past 12 months.
“In all, the jury crumbs out not just for TUI’s progress but perhaps for the industry as a whole,” Hunter said.
“The (TUI) share price has spiked of late, having climbed 23% over the last three months including a fillip (Monday) following the Thomas Cook news, although on the last year the picture is markedly different,” he added in a note Tuesday.
“Here, a decline of 37% compares to a 1.8% dip for the wider FTSE100, while the mixed view of the shares has also recently eased. Perhaps not surprisingly, given these uncertain times and clear ultimata, the market consensus of the shares has now slipped to a hold, albeit a strong one.”