Some doubters had worried that we would see a third runway built at Heathrow before the return of the IAG-British Airways dividend. After years of sorting out Iberia, IAG has announced it will pay an interim dividend of 10 euro cents a share. Yet the bigger story is, what next for the three main UK-based airlines?
Today’s half-year results are a watershed for IAG and its chief executive, Willie Walsh. The arrival of IAG’s first dividend — BA had scrapped its payout during the depths of the 2008 financial crisis — sends the signal that the takeover by BA of Iberia (and its renaming as IAG) is finally deemed a success, and that all is well with IAG’s latest acquisition, Aer Lingus.
The point of IAG is the missing “c” in the acronym for a company that is called International Consolidated Airlines Group. The idea is that it will be acquisitive. The smart money is on its next deal being with Finnair, an airline that has already lifted its skirts, that would offer an interesting north European base and, as such, good access to China and Far Eastern markets, and has a fleet of state-of-the-art super-efficient Airbus A350s already arriving.
Such is the strategic persuasiveness of that argument that some believe if IAG doesn’t do a deal with state-controlled Finnair, it will move on to the privately owned Norwegian, the low-cost airline flying budget fares to North America with a growing fleet of similarly game-changing Boeing 787s. That is a less persuasive argument for IAG because of the potential for confusion between full-service and no-frills flights.
But if IAG did go for Norwegian, it would probably stir Ryanair into action. The Irish airline, whose main home is Stansted, has long talked of setting up a budget north Atlantic carrier. Norwegian is the template. So, if you are Ryanair, why would you compete when you can utilise your cash pile, the biggest in the industry, and take Norwegian out?
Of course Norwegian is a deal that easyJet should do. But such a strategic manoeuvre is probably beyond the current management, which, unhelpfully, continues to have more than one third of the carrier’s shares in the hands of Stelios Haji-Ioannou, the uncooperative founder.
The opportunities for IAG, Ryanair and easyJet are great. Shares in each are at or near all-time highs. But this is a viciously cyclical industry. It is hard to believe there is much more share price upside for any of them.
Passengers 66m
H1 dividend €0.10
MY ADVICE Take profits
WHY In a cyclical industry, shares in Ryanair, IAG and easyJet have peaked
Here’s a rarity. Serco has won a contract. As it happens it is about as far as possible from Whitehall, where much of Serco’s work used to come, but a 20-year,£300 million project to oversee the delivery of Australia’s new Antarctic ice-breaking vessel is still a win.
Serco winning contracts was commonplace and never used to be a news story. Now long periods of silence from the company is the norm since it got caught stitching up the Ministry of Justice over prisoner delivery contracts.
Rupert Soames and his old wingman Angus Cockburn from their winning days at Aggreko have been at Serco for 18 months. Mr Soames promised that the turnround of the once favoured public services contractor would be a long job.
However, with the shares dribbling ever downward to new lows, it would appear that even those who believe Mr Soames can work miracles are having a crisis of faith.
It is probably true that the more distance that Serco can put between it and its cock-ups, the likelier it is to start winning new contracts, the lifeblood of such an outsourcer.
That time is not yet. Which secretary of state would sign off on a deal with Serco without quivering at the thought of media condemnation?
It is not as if Serco is out of the bad news woods. An investigation has begun into its handling of the Yarl’s Wood immigration detention centre. There is talk it could get sacked from the atomic weapons establishment contract.
Even if the Serco ship begins to turn, it will be quite some time before the sharebuyers flood back.
Market cap £1bn
Share slump 85%
MY ADVICE Leave alone
WHY No signs of yet a real renaissance
It is not quite Agincourt but in the retendering of the contract to run the Manchester Metrolink tram system, plucky National Express finds itself roundly outnumbered by the French on the shortlist: RATP, the Paris outfit that is Manchester’s current incumbent; Keolis, a subsidiary of SNCF; and Transdev, part of Veolia, are all in the running.
National Express’s bid is interesting. It shows a renewed interest in UK contracts that it likely to lead to the company trying to expand its bus interests from its West Midlands stronghold. Once king of the railways and then throughly dethroned, it is once again chasing train franchise retenders.
The company is the most international of Britain’s passenger transportation groups. Its significant operations in the US and Spain have helped it to produce strong third-quarter numbers. It is putting down roots too in Germany, the Middle East and north Africa. International diversification offers great opportunities but also much risk.
Analysts reckon that the company is undervalued compared with its peers Stagecoach and Go-Ahead and see share price upside potential. Success is dependent on the quality of its management. In Dean Finch and Sir John Armitt it has two of the best.
Revenues +3%
Profits +7%
MY ADVICE Buy
WHY Strong management in a company under-rated by some
And finally . . .
Alex Salmond used to boast that what Saudi is to oil, so Scotland is to the potential for marine energy. Yesterday Aquamarine Power, one of the great hopes for the Pentland Firth wave energy boom, fell into administration, its demise following that of another, Pelamis, last winter.
Both of them were significant recipients of taxpayers’ money. Their failures indicate that the faith placed in many renewable projects is a triumph of hope over experience.
