Airline stocks rally as Monarch fails

Usually what’s bad for one airline – higher fuel costs, terror attacks, air traffic control strikes – are bad for the sector. Shares in the various players have a tendency to track each other with some consistency. But the failure of Monarch is good news for rivals. 

Airline shares were among the big gainers on Monday after Monarch went belly up. EasyJet shares rallied 5%, while Ryanair, IAG and Deutsche Lufthansa were also higher. Thomas Cook and TUI also rose.

It looks like EasyJet could be best place to benefit as airlines feast on the carcass.

And no doubt this takes the heat off Ryanair but it has wider implications. The third airline failure this year in Europe, after Alitalia and Air Berlin, is a symptom of over-capacity and overly-aggressive pricing.

It means fewer seats to fill sector-wide – more than 6m in the case of Monarch. This should mean Ryanair, EasyJet and the rest can comfortably improve load factors, even if the reputation of the former has suffered of late. This should be positive for margins despite pricing pressures.

There are now only really five big carriers operating in Europe: Ryanair, Lufthansa Group, International Airlines Group, Air France-KLM, and EasyJet. Many more mid-sized carriers are limping on thanks to cheap oil but further consolidation may be necessary.

And as for Ryanair, which has taken a big hit over the last week or so, it is among the last standing – its reputation can take a few more knocks.

Housebuilders up on Help to Buy help

Elsewhere, housebuilders got a lift after the government announced plans to boost Help to Buy with another £10bn. If it can find this dosh from down the back of the sofa it should support prices and demand at the first-time buyer level at which the big players operate.

On the FTSE 100, Barratt Developments was up 4% and Taylor Wimpey climbed 2%.

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