BA is today's biggest FTSE riser. Where next for the world's favourite airline?
When you first start out as a private investor and look at a company's share price history, you make those naive mental calculations like "if I'd bought two years ago, I'd be X% up by now". And the share price graphs always look obvious in hindsight; the trough was clearly the time to buy and vice-versa.
So when British Airways' (LSE: BAY) shares neared £6 each in early 2007 and our economy built on the shifting sand of house price rises looked set to fuel further growth and ever more business travel and holidays, the shares were an obvious sell; obvious in hindsight that is. The party couldn't go on. And it didn't.
One of the first things you don't do as recession bites is have a face-to-face business meeting in New York, or take the family on a long-haul holiday. So it's perhaps no great surprise that the company has today announced its worst-ever first-half results for the half year to the end of September, reporting a pre-tax loss of £292m.
Shares soaring
What may seem a little more surprising is that the shares are up almost 7% as I write, to the cusp of £2. So was -- or is -- this the kind of "obvious" share price trough that will prove to have been a no-brainer even to the most naive of investors a few years from now? The short answer is "no" as the shares went below 120p in July. But if you fly a little higher and look down, the shares are still very low by historic standards.
On the surface, there's precious little to get excited about. This is the first time the airline has reported a loss in the first half. In the same period last year, when the world was feeling even more pessimistic, BA reported a profit of £52m for the same period.
Beset by problems
And the world's former favourite airline is facing all sorts of other problems as it struggles in the recession. It is in a tussle with the unions over changes to jobs and pay, it wants to cut the number of cabin crew staff on its long-haul flights, and is proposing a two-year pay freeze which, it says, are essential for the airline's survival.
BA already shed 1,900 workers in the first half and now intends to cut a further 3,000 staff world-wide in the second half -- from its total workforce of almost 39,000. This will cause even more confrontation with the unions and a possible strike. But such cost-cutting measures and fuel cost savings are welcome news to investors who want to see a return to profitability, hence the share price rally today.
Why bother?
Meanwhile the brokers have been welcoming the beginnings of what they perceive to be the very beginnings of a recovery in passenger data and the potential for the synergies of the mooted merger with Spain's Iberia airline if terms can be agreed. But the consensus is still for a loss per share of over 36p this year, falling to 2.49p next as the perceived recovery and cost-cutting measures do their work on the bottom line.
Who really knows how the airline's shares will fare from here? The recession may have the kind of double dip expected by some doomsters, or we may be truly out of the woods and the airlines will follow. In turn, BA's shares could crash land or soar, but whatever they do, there are many much better looking bargains elsewhere, so why bother unless you really enjoy a gamble?
More of this week's blue chip comment:
