Airlines fly higher on Monarch collapse

Airline stocks enjoyed a solid performance on Monday as investors welcomed news there would be one less competitor following the collapse of Monarch.

Shares in Ryanair, easyJet and British Airways and Iberia owner International Consolidated Airlines Group all flew higher.

Neil Wilson, senior market analyst at ETX Capital, said: "Usually what’s bad for one airline - higher fuel costs, terror attacks, air traffic control strikes - are bad for the sector. Shares in the various players have a tendency to track each other with some consistency.

"But the failure of Monarch is good news for rivals. No doubt this takes the heat off Ryanair but it has wider implications. The third airline failure this year in Europe, after Alitalia and Air Berlin, is a symptom of over-capacity and overly-aggressive pricing.

"It means fewer seats to fill sector-wide - more than 6m in the case of Monarch. This should mean Ryanair and easyJet can comfortably improve load factors, even if the reputation of the former has suffered of late. This should be positive for margins despite pricing pressures."

Meanwhile, Rebecca O’Keeffe, head of investment at Interactive Investor, said capacity being taken out of the market was always going to be good news for other airline stocks. However, she also pointed out that the collapse of Monarch highlights serious issues for the industry.

"The weaker pound has seen UK holidaymakers tighten their budgets and the increased threat of terrorism has reduced target holiday destinations and made these routes more congested and competitive. Less competition is good news for airline share prices in the short term, but if these Monarch’s assets are simply repatriated to other carriers, the drop in capacity may not persist for long."

Graham Spooner, investment research analyst at The Share Centre, said that with the poor press Ryanair is currently getting and in view of its ongoing problems, easyJet could be the best placed to benefit.

"The collapse of Monarch may alleviate some of the pressure on over-capacity in the sector, while also enabling remaining companies to massage the prices on certain routes higher.

“However investors should appreciate that the sector is likely to remain difficult for operators, with continued pressure from new entrants such as Norwegian and the recent backdrop of the 25% rise in the oil price since June. Operators will be hoping that that trend does not continue. Other pressure points are of course Brexit, the weak pound and the threat of terrorism.

Spooner's top pick in the sector remains IAG, which he reckons should continue to benefit from the restructuring that took place a few years ago. "Although not directly involved at the cheaper end of the market IAG has already expressed interest in taking some of Monarch’s slots, planes and staff," he said.

Monarch's accountants, KPMG, announced early on Monday that the airline had been placed into administration and all further flights from the UK had been cancelled. The government has asked the Civil Aviation Authority to charter more than 30 planes to bring back about 110,000 customers who have been left stranded as a result of Monarch's collapse.

At 0945 BST, easyJet shares were up 3.9% to 1,265.67p, IAG was up 1.9% to 604.50p and Ryanair was 2.8% higher at €16.72.