Is the airline sector back at cruising altitude?

About seven years ago I was invited out to Boeing Fields in Seattle. It was quite an experience. Around the airstrip and manufacturing base a whole industry had sprung up to service the sector, rather like what you’d find in British steel towns like Scunthorpe.

Interior designers dedicated to perfecting the lighting and colour palate enjoyed by different classes of passenger.

Global chair manufacturers battled for showroom space to highlight their wares to aircraft buyers and even hot tub makers occupied retail boltholes so they could seduce the ultra-rich into kitting out their personal transportation with the ultimate in inflight luxury.

The city was also steeped in coffee (Starbucks also hails from a metropolis famous for the Tom Hanks / Meg Ryan film) and train tracks circled every inch that didn’t seem to be covered in water.

Those tracks were the conduit to a US manufacturing sector that would send giant metal husks on massive wagons ready for the engineering guts to be stuffed into them by a perfectly choreographed team at Boeing.

It was before 2018, before the first of two horrendous crashes that brought the US manufacturer and many of its suppliers to their knees; before Covid struck another blow and travel was restricted.

There are no words to get past what happened in Indonesia and Ethiopia, but life and industry has to move on.

People will keep flying and they will need the means to do that.

Boeing’s share price performance over five years

Source: Refinitiv

Boeing has been in the weeds, and its share price tanked as it fought to make things right, or at least make things safe.

Cleared to fly, the 737 Max has a lot of attributes that airlines and investors are still looking for. More seats, less fuel demand, and much quieter for the sleepy people nestled around urban flight paths.

And that brings us bang up to date after an 18-month spat that saw Ryanair scrap toe to toe with the US manufacturing giant.

I remarked on LBC last week that I would have been intrigued to have been a fly on the wall of those negotiations.

Michael O’Leary has made an art out of courting controversy and never backing away from a fight and it’s really impossible to know who needs who more.

Ryanair wants to get more bums on seats on every plane. More paying passengers per flight makes the margins look much brighter.

The 737 Max 10 does that, with 21% more seats, 20% less fuel and 50% less noise.

Those numbers are pretty enticing, but what’s not so enticing to the budget airline is the amount of cash it’s had to commit in order to secure this deal.

At list price the aircraft it has committed to comes in at a whopping $40 billion – the question on everyone’s lips is exactly how much of a discount did Ryanair get for such a big order and exactly who has the upper hand here.

Boeing needs Ryanair – the record order signals that the plane maker is ready to put the past behind it and focus on the future for its thousands of employees and investors.

Ryanair needs Boeing – the budget airline is looking to almost double its traffic to 300 million passengers a year by 2034 creating around ten thousand jobs.

Travel has been resilient, despite the current cost-of-living crisis and changes to travel habits post-Covid.

Business travellers haven’t returned in the same way and in the USA travel demand has become increasingly difficult to forecast with any kind of accuracy, but there are glimmers that other demand might fill the gaps.

Lufthansa’s boss recently remarked that for the first time ever all of his top team were advising him to invest in first class provision because the tourist classes were demanding more from their transportation.

Back in the UK analysts have been falling over themselves boost their stock price targets for British Airways owner IAG after it finally returned to profit, and both they and rivals Jet2 and EasyJet have raised their guidance for the year.

Shares in travel companies have been among the best-performing stocks over the past six months, with even the most bullish investor giving the sector another glance as oil prices fall and passenger numbers rise.

Popular airline stocks: six-month share price change

Source: Sharepad as of 11/05/2023

There are still loads of skeletons that might fall out of the overhead storage bins, particularly if inflation remains sticky.

But for investors travel might just have been given its green card.

Past performance is not a guide to future performance and some investments need to be held for the long term.