Zak Mir on Freddie Laker, airlines and being too early in a trade!

In the good old days, which one would probably now say would be before the 1990’s, it was traditional to suggest that investing in airlines was not a good idea – especially for the long term. This was said on the basis that the flag carriers tended to work as non profit making organisations – with the lesser players / independents largely squeezed out by dirty tricks / the unfair advantages of the aforementioned flag carriers. Poor old Freddie Laker and his Skytrain was the most famous example. But at least now in the 2010’s, Sir Freddie can look down from the great flight path in the sky and see that he was on the right track and that the likes of Ryanair (RYA) and EasyJet (EZJ) have taken revenge on his behalf! As hedge fund hero Hugh Hendry has said, it can be just as bad being too early on a trading idea, as too late.

But actually, the purpose of today’s blog is to take a look at the leading listed airlines and see whether, after an almighty bull run, it may be time for the bulls to head for the departure lounge? It helps my case as far EasyJet is concerned that today we have seen an unfilled gap to the downside, not only in the wake of the latest  half year results, but also on bird flu fears – yes, that again! This should not have too much to do with EU focused flights, but the shares have fallen nonetheless – a sign of willing sellers at these levels. The view at this stage is that while there is no end of day close back above the top of the gap at 1,090p a test for support towards the initial February 919p low cannot be ruled out on a 4-6 week basis, bird flu or no bird flu.

‘Treat ‘em mean, keep ‘em keen’ flights provider Ryanair is of interest at the moment. For me, this was highlighted recently as Ryanair allowed me to book seats online in the same row together  (at an additional charge of course) for the  Mir family. When we got on board were told we could not sit together for safety reasons =  £80 down the  drain!  There is also interest on the basis that there was an exhaustion gap fill sell off starting some days ago with the end of day close back below the floor of a March gap higher at €6.07 on 22^nd March. While the price action has admittedly been rather ragged ever since, we are however trading lower than the gap floor and the likelihood is that further downside will be delivered while €6.07 caps the share price. The expected target is analogous to that of the EasyJet position – February support in the €5.50 region, with the timeframe being by the end of next month.

Of course, it would be wrong to look at the technicals of the no frills groups without looking at the world’s “favourite” airline International Consolidated Airlines (IAG). The only fun aspect here is that at the time of the merger between British Airways and its Spanish counterpart, Iberia, this looked to be like something of a marriage made in hell, and so far it can be said the partnership has delivered exactly what one might have feared. The current struggle is largely in Spain with Spanish Unions apparently not aware that practices relating to the 1960s – 1970s don’t work so well in the 2010’s and also with 25% plus unemployed and Iberia losing cash hand over fist, they don’t have much leverage!

As far as the charting position at IAG is concerned, it can be seen that here, we not only have a March exhaustion gap sell signal, but a second unfilled gap to the downside today. This would suggest that unless there is a pretty swift recovery of the last March intraday low at 248p the downside here over the rest of April could be towards the top of the last February gap floor at 223p.