Crisis in airline industry deepens as struggling Norwegian Air, Thomas Cook and Flybe hit by fresh turbulence. The sector has been pummelled by over-expansion, with too many budget carriers competing to woo customers at a time when volatile oil prices have increased costs for airlines. And analysts say it could be only a matter of time before more airlines go bust following the collapse of Air Berlin, Germania, Primera and Monarch. On another bleak day for the industry: Flybe Group (FLYB) warned it will fold if shareholders don’t back a £2.2m rescue package; The airline also said it will not make any bonus payments to company executives next year; Norwegian Air plunged to a £270m loss in the fourth quarter and put a brake on its growth plans; Thomas Cook Group (TCG) announced it is considering selling its airline business to raise cash. Ryanair Holdings (RYA) warned earlier this week that it expects ‘more closures and airline failures’ this year, as the presence of too many budget carriers offering cheap flights to Europe means companies cannot raise ticket prices. Laith Khalaf, senior analyst at Hargreaves Lansdown, said: ‘The short-haul European airline market is witnessing the effects of over-capacity in the sector, combined with disruption from industrial action and terrorism. ‘Falling fuel prices at the back end of 2018 will provide some respite, but Ryanair and easyJet (EZJ) are still increasing the number of seats whizzing around European air space, which is keeping ticket prices low. This is an environment where weaker business models are going to come under heavy pressure, and that probably spells more consolidation, and possibly more failures.’
Superdry founder Julian Dunkerton fires more flak at fashion chain’s directors accusing them of presiding over ‘weakest’ performance in its 34-year history. Dunkerton, 53, who left the business last year, declared ‘action must be taken’ after Superdry (SDRY) posted a 1.5% drop in sales to £269.3m for the 13 weeks to January 27. Sales at Superdry’s stores tumbled 8.5% to £126.8m, while its internet business fell 0.7% to £69m. Its wholesale operations recorded a 12.7% jump to £73.5m. The figures pile further pressure on chief executive Euan Sutherland and chairman Peter Bamford amid a public spat with Dunkerton. The entrepreneur, who is married to 32-year-old designer Jade Holland Cooper, said the latest figures proved that Superdry’s strategy is ‘failing dismally’.
The Bank of England is prepared to intervene if corporate raider Ed Bramson destabilises Barclays (BARC), governor Mark Carney has warned. Bramson is trying to force his way onto the Barclays board through a shareholder vote, and has hinted he will seek a radical change of direction if he succeeds, including major cutbacks. But to sit on the board the 68-year-old will need approval from the Prudential Regulation Authority, part of the Bank of England responsible for the stability of major lenders. And while he did not mention London-born Bramson by name, Carney, 53, indicated that the Bank of England was watching developments at Barclays closely.
Housebuilder Bellway (BWY) has said that Brexit is ‘inevitably’ taking its toll on consumer confidence and the economy. Although the group boasted of strong sales figures in a trading update today, its cancellation rate crept up from 11 to 13% in the six months to the end of January. Brexit jitters aside, Bellway said demand for affordable homes, low interest rates, cheap mortgage deals and the Government’s Help to Buy scheme combined to stoke ‘high’ levels of consumer interest in the firm’s homes. The average cost of a home by Bellway increased by £17,855 to £293,800 in the last six months. Bellway said it was expecting total revenues to rise by over 12% to nearly £1.5billion for the half-year.
Shares in holiday group TUI AG Reg Shs (DI) (TUI) have fallen after the firm cut its annual earnings forecast. Battling against ‘extraordinary hot weather’ and a weak pound, Tui said it expects adjusted earnings for the year ending 30 September to come in flat at around £1billion. This compares to previous guidance for at least 10% growth in earnings in the three years to 2020. A shift in demand from the western to the eastern Mediterranean also created overcapacity in places such as Spain’s Canary Islands, Tui said. Hot weather and a weak pound had made it ‘difficult to improve margins on holidays sold to UK customers’, the firm added.The pound’s weakness has been weighing on the purchasing power of UK-based holidaymakers and means that holiday firms would have to put up prices to maintain profit margins. Tui added: ‘Previously, it was anticipated that these headwinds would impact primarily the first half (winter), however we are seeing from current bookings an additional impact on the second half (summer), and have updated our guidance accordingly.’
Plummeting pig prices and the cost of opening a chicken factory have pushed down profitability at meat processor Cranswick (CWK). The firm said revenue was 2% lower in the last three months of 2018 compared to the year before. It also warned of a hit to profits. Cranswick blamed disappointing sales of pork products which growth in poultry and continental meats failed to offset. UK pig prices have been pressured recently by subdued post-Christmas demand, plentiful supplies on farms and low EU prices, according to the Agriculture and Horticulture Development Board. Cranswick said this was being reflected in its charges to customers, pulling revenue down.
Trouble for a competitor led to problems for advertising giant WPP (WPP) yesterday. The company, whose founder Sir Martin Sorrell left last year amid allegations he had used the firm’s money to pay a prostitute, which he denies, slid as its French peer Publicis released full-year results. Publicis dramatically missed revenue growth targets in the fourth quarter of last year, driven by poor performance in North America, and investors were wary that WPP would be hit with the same problems.
Natural disasters weighed on insurance business Beazley (BEZ), which revealed profits had more than halved to £58.9m after a year of wildfires and hurricanes. The firm remained upbeat as chief executive Andrew Horton pointed out it had seen a 12% increase in written premiums over 2018, taking the total to £2 billion. Beazley was also calm on Brexit, saying that leaving the EU ‘should not present any insurmountable challenges’ for its business.
Artificial knee and hip manufacturer Smith & Nephew (SN.) was the FTSE 100’s biggest riser, jumping 5.7%, or 83.5p, to 1545p. Its profit was boosted as it won a one-off £68m legal settlement against insurers, related to artificial knee components which were withdrawn from the market in 2003.
Travel booking firm On The Beach Group (OTB) avoided the troubles of its larger peers as it met investors at its shareholder meeting. In an update, it said revenue for the four months to January 31 grew by 20%, even after marketing costs. Last summer’s heatwave had forced the firm to cut its marketing spend, as fewer customers chose to holiday abroad. But yesterday the group said it was ramping up its offline marketing activity and its online adverts were becoming ‘increasingly efficient’.
Tax Systems (TAX), which creates technology to help companies keep their accounts in order, has been in ‘advanced discussions’ with private equity firm Bowmark Capital about a 110p per share takeover. Shares jumped 6p, to 106.5p.
