The travel business is a tough one, though its competitive tussles don’t often end up in the High Court. But that’s what’s happened now, as On The Beach (LSE: OTB) has commenced legal action against Ryanair Holdings (LSE: RYA).
On The Beach claims that Ryanair has been making it harder to books seats for its customers, and putting onerous check-in procedures in their way. I can see why Ryanair would prefer to sell its seats directly, as the budget airline can sell extra holiday services at the time of booking. It also gets to retain more personal details for use in future marketing.
Ryanair encourages fliers to book directly. They should, the company claims, avoid price mark-ups that way. Ryanair has also accused online travel agents of obfuscating customer details to keep them away from its marketing and sales efforts. On The Beach, for its part, has denied any such behaviour.
In an industry with often razor-thin margins, jostling for customers is very much part of the business. But when it comes to legal action, I wonder if it could harm both sets of shareholders.
In the past few days, both share prices had been falling, after a decent run in 2021. The Ryanair share price is up 25% over the past 12 months. On The Beach shares, meanwhile, have soared 60% in the same period.
On The Beach ahead of Ryanair
Over five years, On The Beach is ahead with a 52% gain compared to Ryanair’s 28%. But it’s been a rocky ride. On The Beach shares stand at 348p as I write, up 4.5% on the day. But back in April 2018, they were going for around 640p.
The Covid-19 pandemic gave On The Beach a good kicking. But prior to that, the stock had already been declining. Yet again, I’m seeing that old familiar growth stock story. Investors pile in during the early days, pushing the shares to an overvalued peak. It can take a few years before reality sets in, and that reality is value-based.
So what’s the value of On The Beach now, and would I buy? Well, Ryanair first. Ryanair is definitely a no for me, and that’s saying nothing about the company itself.
Super competitive
I just don’t invest in super-competitive industries in which the participants are at the mercy of external factors not under their control. Ryanair traditionally shows poorly in annual customer satisfaction surveys, yet even that makes little difference to its performance. When it comes to budget airlines, just about the only thing people care about is price. And to-the-bone price cutting is not something I want to invest in.
I prefer what I see in On The Beach. The company recorded a loss in pandemic-hit 2020, and again for the first half of 2021. But if we get back to 2019 profit levels, the current share price would suggest a P/E of about 16. I think the next year or two will still be risky for investing in the travel industry, and I’m still very wary of the intense competition. But I think On The Beach looks decent value now.
