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Seven companies to watch

The airline industry is booming despite some turbulence. Here’s a look at the most interesting companies.

ADP

A global giant

  • Foundation: 1945
  • Headquarter: TREMBLAY-EN-FRANCE (FR)
  • Revenues: € 3,6 BN (2017)
  • Effectives: 17'422

The decision from the Macron administration is likely to shake things up a bit in France. But the deal is done: on Thursday 4 October, French MPs agreed to privatise Groupe ADP – formerly Aéroports de Paris. That means that the French government, which holds a 50.63% stake in the company, will sell all or some of its shares. The announcement made ADP’s share price spike. Indeed, the company is a cash machine. In 2017, ADP posted profits of €571 million, up 31% compared to 2016. Besides the Paris-Charles de Gaulle hub, the French group manages 26 airports around the world through which 228.2 million passengers travelled in 2017. And the outlook for the airport group is good, due to the high growth in air traffic that’s expected. Most analysts recommend keeping shares.

EasyJet

The ravenously ambitious airline

  • Foundation: 1995
  • Headquarter: LONDON-LUTON (UK)
  • Revenues: £5.9 BN
  • Effectives: 12'000

After acquiring a part of Air Berlin in December 2017, easyJet announced in early November that it would continue talks with the Italian government in order to acquire the short-haul business of debt-ridden Alitalia. With this acquisition policy, the orange brand is making a name for itself in a European sky that is becoming more consolidated by the day. After transporting 88.5 million passengers in 2018, EasyJet wants to increase its capacity by 10% in 2019. Rising fuel costs, which make up one-third of the company’s costs, as well as the potential consequences of Brexit, encourage analysts to be careful. Most advise to keep shares.

Flughafen Zürich

The Swiss leader

  • Foundation: 2000
  • Headquarter: KLOTEN (ZH)
  • Revenues: CHF 1,04 BN (2017)
  • Effectives: 1'773

Increase in passengers, positive sales figures and exceptional profits abroad... Flughafen Zürich, Switzerland’s only listed airport, had a solid 2017 with profits reaching 285.5 million Swiss francs, up 15.1% over one year. In coming years, the global boom in air traffic is expected to benefit the Zurich hub, where 29.4 million passengers travelled through in 2017, compared to 17.3 million at Geneva-Cointrin. But the revision of the airport tax structure as outlined by the Swiss Federal Office of Civil Aviation could hamper the results. The text states that taxes will increase from 30% to 50% on revenue from commercial activities. If this modification is approved by the Swiss Federal Council, Flughafen Zürich’s revenue could drop by one-quarter starting in 2020, according to the airport’s calculations. Worried by this outlook, investors took action. In November, its stock shed 15% on the day of the announcement. We recommend that you keep your shares.

Fraport

The Frankfurt airport

  • Foundation: 1924
  • Headquarter: FRANKFURT (DE)
  • Revenues: € 2,9 BN (2017)
  • Effectives: 20'673

Global air traffic growth benefits the Fraport group, which manages the Frankfurt airport as well as other airports around the world, such as Ljubljana (Slovenia), Varna (Bulgaria), Saint Petersburg (Russia), Lima (Peru) and Xi’an (China). Over the first nine months of 2018, the German company’s revenue was up 10.4% to €377.8 million. The 14 regional airports in Greece, which joined the Fraport group in April 2017, contribute to this solid performance. The upcoming expansion of the Frankfurt airport should further increase revenue, as the new Terminal 3 will open in 2023. With nearly 51% of shares held by the city of Frankfurt and the state of Hesse, the Fraport group is a listed company that remains under public control. Many analysts recommend purchasing or keeping shares.

Norwegian

The long-haul pioneer

  • Foundation: 1993
  • Headquarter: FORNEBU (NO)
  • Revenues: € 3,1 BN (2017)
  • Effectives: 10'000

Until now, Norwegian Air Shuttle has rejected any potential acquisition proposals. But that might not last. Founded in 1993, the Scandinavian company is the first of its kind in the low-cost long-haul industry. It has seen incredible growth since 2013 – nearly 15% per year – which made it the eighth largest European airline with 30 million passengers transported in 2017. But this too-fast progression was financed by loans that are now weighing down the company’s budget. With a debt of €2 billion, Norwegian must rein in its wings. To bail itself out, the group announced in September that it would sell up to 140 aircraft on order. As Lufthansa and IAG have announced their interest in acquiring Norwegian, the company’s share price fluctuates according to rumours.

Ryanair

The industry troublemaker

  • Foundation: 1984
  • Headquarter: DUBLIN (IE)
  • Revenues: € 7,15 BN (2017)
  • Effectives: 13'000

Fees for obese people, flights where passengers travel standing up and even fees to use the toilets. Since its beginnings in 1984, Ryanair has rocked the airline industry with its sensational announcements from Michael O’Leary, its iconic CEO. Behind the (currently short-lived) headlines is a flourishing business. Over the financial year from 1 April 2017 to 31 March 2018, Ryanair made a record profit: €1.4 billion, up 10% year-on-year. But experts are prudent regarding 2019. The Irish company, which is facing endemic social discontent, had to grant salary increases to staff following a series of strikes. Increased petrol prices and Brexit will also weigh on the company’s margins. For these reasons, most analysts advise to keep shares and wait for a calmer time.

Southwest

The American model

  • Foundation: 1971
  • Headquarter: Dallas (US)
  • Revenues: $21,17 BN (2017)
  • Effectives: 57'700

In 1966, Rollin King, a Texas entrepreneur and his lawyer, Herb Kelleher, were having drinks at a bar. According to the legend, they had an epiphany that would revolutionise air travel: a company whose planes are always full could sell tickets for half the price. In 1971, when Southwest Airlines took off, it already had all the characteristics that would later be mimicked by Ryanair and easyJet in Europe: low prices, maximum use of aeroplanes and many additional options for a fee. While Southwest has seen some ups and downs in its history, it has always remained in the green. In 2017, the company celebrated its 45th consecutive year of profit, coming in at $3.5 billion. It is a sure bet that most analysts recommend purchasing.

 
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