Reuters - Video

Edition: U.S. | U.K. | IN | CN | JP

Business

Fasten seat belts, turbulence ahead?

Friday, August 01, 2014 - 02:30

British Airways owner IAG reports a 55 percent rise in profits - a day after Lufthansa's Q2 numbers point to a sector where fortunes are, at best, mixed - and where investors have to contend with growing levels of geopolitical risk. David Pollard reports.

▲ Hide Transcript

View Transcript

Go back a few decades, air travel was altogether a classier affair. Now, for most, though, it's getting from A to B as quickly as you can. And as cheaply. Ryanair has set the low-cost mould - and it's still paying off. Their first quarter results - unveiled this week - showed profits doubling compared to a year earlier. Some surprise then that IAG is also reporting a sharp swing to profit. It's up 55% per cent in the second quarter thanks to a recovery at Iberia, and its deep cuts in staff and in costs. Crucially it also did what investors were looking for by reaffirming its targets. Darren Sinden of Titan Investment. SOUNDBITE (English) DARREN SINDEN, TRADER, TITAN INVESTMENT: ''It's not good enough at the moment for a company to, you know, meet or even exceed earnings forecasts. What they need to is to be able to give a positive outlook for the coming quarters, and in an uncertain economic environment, it's very few that can actually do that.'' Lufthansa is still struggling in the no-frills environment. It reported lower than expected second-quarter profit as ticket prices fell on North American, Asian and European routes - recent strike action also weighing on the numbers. It and rival Air France-KLM have both issued profits warnings in the past eight weeks. Both also announcing plans for more low-cost operations. Brenda Kelly of IG says that's not the only challenge. SOUNDBITE (English) BRENDA KELLY, CHIEF MARKET STRATEGIST, IG: ''Lufthansa is looking a little bit short-changed at the moment and they've had a number of strikes over the last six months which have clearly impacted both morale and, of course, the actual days of trade as well ... Certainly the fact that it is so close the problems in Ukraine and Russia means it may very well have to affect its flight path, and of course there are the insurance premiums which will be driven up.'' With Malaysian Airlines flight MH17 seemingly shot out of the sky, Ukraine adds to a growing list of geopolitical concerns for airlines. Just recently flights to Israel were banned for several days because of the conflict in Gaza. Flights to and within West Africa are now under scrutiny because of a new threat: ebola. SOUNDBITE (English) BRENDA KELLY, CHIEF MARKET STRATEGIST, IG: ''While the world doesn't seem to have woken up to the fact that this is quite a major problem, there does seem to be signals at the moment that this is going to be next point of call.'' Airline industry body IATA says it's monitoring developments in the ebola outbreak - in close coordination with the World Health Organisation.

Press CTRL+C (Windows), CMD+C (Mac), or long-press the URL below on your mobile device to copy the code

Fasten seat belts, turbulence ahead?

Friday, August 01, 2014 - 02:30