Aviation sector in a mess as staff issues derail recovery, and FTSE 100 higher despite grim news from Ukraine

“The airline industry has continued its run of bad luck, though some of its pain is self-inflicted,” says AJ Bell Investment Director Russ Mould.

“Hot on the heels of long delays at Heathrow and Manchester airports is news that EasyJet has cancelled 100 flights and British Airways owner International Consolidated Airlines also unable to operate all of its scheduled flights.

“These issues stem from airlines and airports having insufficient staff to cope with rising demand. A resurgence in Covid cases hasn’t helped, with many workers off sick.

“The broader aviation sector has been waiting for the magic moment where flying restrictions were lifted, and individuals regained their confidence to get on a plane again. With both forces now in motion one would have thought businesses that enable and support the flying experience would be making hay while the sun shines. Unfortunately, the sector’s recovery is as chaotic as someone on their first flying lesson.

“Airlines have promised vouchers to compensate for any disruption, but this is the last thing they want to do, given that they are still trying to work their way through vouchers issued during the pandemic.

“News bulletins showing long queues of people waiting to get on planes will put many people off from jet-setting to a different location. Together these forces could result in tens of thousands of people saying they won’t bother with flying again this year, and best to wait until everything has settled down.

“If the current disruption continues into the Easter weekend, we could easily see airlines like EasyJet have to downgrade their earnings forecasts. Making matters worse is the fact that oil prices remain stubbornly high which is putting pressure on fuel costs. Ryanair is clearly concerned about the situation given how it has announced increased fuel hedging.

“The soaring price of fuel could weigh on corporate earnings in the airline sector unless extra costs are passed on to the customer. Doing so is a big risk given how consumers are under considerable pressure from the rising cost of living and may not be able to stomach higher ticket prices, but many airlines have significant debts which they are desperate to reduce so they will have to find ways to protect their margins.”

Markets

“Despite all the gloom, the FTSE 100 found reasons to be cheerful first thing on Monday, though the identity of the biggest riser – defence firm BAE Systems – provided a sober reminder of the increasingly grim backdrop provided by the ongoing Ukrainian conflict.

“The geopolitical uncertainty and the global surge in inflation have not fully derailed global deal-making, with a merger between housing finance firm HDFC and India’s biggest lender HDFC Bank very significant from an emerging markets perspective.

“Lots of fund managers focused on the developing world own these stocks and they will likely be doing some quick-fire analysis on the merits of the transaction.

“Closer to home there was further evidence that amid pressure on household budgets, consumers are prioritising spending on experiences rather than stuff as the owner of the Franco Manca pizza chain, Fulham Shore, pointed to revenue ahead of expectations.

“This makes sense when you consider how long people were prevented by Covid restrictions from enjoying activities like eating out and socialising.

“With an emphasis on offering value, Fulham Shore’s proposition looks well aligned with the current cost of living pressures and it shows the right offering can thrive even in a difficult environment.

“With the calendar looking thin on big corporate announcements, the market’s focus this week, beyond events in Ukraine, is likely to be drawn to two releases in the US.

“Tomorrow sees the release of PMI data for the country’s services sector, while on Wednesday the minutes of the latest US Federal Reserve meeting are published. These will be trawled for insight into the balance the Fed is looking to draw between tackling inflation and not pushing too hard on rates so that the economy slips into recession.”

These articles are for information purposes only and are not a personal recommendation or advice.