If you want to see a good growth story or two, you don’t need to go much further than the airline business.
Ryanair (LSE: RYA, has seen its share price soar by 130% over five years to €7.15, against a mere 40% gain for the FTSE 100.
But that’s knocked into the shadows by easyJet (LSE: EZJ), whose shares have managed a magnificent 320% rise to 1,332p over the same period — and the price has been even higher, peaking at 1,853p in April this year.
Where’s British Airways?
The only one that hasn’t made big money for its owners is International Consolidated Airlines (LSE: IAG), formed from the merger of British Airways with Spain’s Iberia — in its less than four years as a single company, its shares are up nearly 30%, just ahead of the FTSE. But we have seen a strong recovery since mid-2012 as the firm headed back to a small profit last year.
How do the three compare now? Here’s a snapshot:
| Year | International Consolidated |
easyJet | RyanAir |
|---|---|---|---|
| EPS growth 2013/14 | n/a1 | +62% | -6% |
| P/E |
23.8 | 12.6 | 20.7 |
| Dividend Yield |
0% | 2.6% | 0% |
| Dividend Cover |
n/a | 3.02x | n/a |
| EPS growth 2014/5* |
+87% | +12% | +31% |
| P/E |
9.0 | 12.0 | 14.7 |
| Dividend Yield |
0.4% | 2.8% | 3.6% |
| Dividend Cover |
24.1x | 3.01x | 1.96x |
| EPS growth 2015/6* | +50% | +11% | +13% |
| P/E |
6.0 | 10.7 | 13.1 |
| Dividend Yield |
1.6% | 3.2% | 0.7% |
| Dividend Cover |
8.51x | 2.99x | 11.9x |
* forecast
1 – loss per share in 2013
Note year-ends are to December (2013 etc) for IAG and EZJ, and March (2014 etc) for RYA
What a choice!
I have to confess I’d never buy airline shares myself, as the business is so open to factors that are completely beyond its control, like fuel prices.
There is, at least, some kind of product differentiation to be found these days, with no-frills operators offering cheaper alternatives to those providing a fuller service — the former tend to do better on shorter routes, with the more traditional airlines serving longer-haul destinations and business passengers.
Annoy your customers
Ryanair, of course, has managed to build itself a dreadful (and largely well-deserved) reputation for customer service. And for that reason alone I wouldn’t touch the shares — something like that is very hard to shake off. Ryanair is also not in the regular-dividend stakes either.
International Consolidated Airlines is still in a recovery stage, and we have two years of impressive forecasts that should drop the P/E as low as 6 by 2015, although there’s not much in the way of dividends yet. So there’s a great recovery potential in the share price, but it’s still a risky business and we don’t know what shocks lie around the next corner.
The best budget operator?
Then look at easyJet. Despite the share price rise, we’re still looking at P/E values lower than the FTSE 100 average together with reasonable dividend yields of around 3% and good earnings growth still expected. And the company management seems better focused now since the days of revolt led by founder Sir Stelios.
But the final decision must be yours — I still wouldn’t buy an airline.
