The uncertain UK summer weather usually means an exodus of Brits jetting off to near- and far-flung beach destinations for that vitamin D top-up. This is, therefore, a key time of the year for airline stocks and 2015 so far has been particularly fruitful. Trade was so buoyant at the end of August that most airline stocks recorded a jump in their share prices and easyJet (EZJ) revised up its full-year profit forecast to £675m-£700m, from £620m-£660m with Ryanair (RYA) following suit shortly after with a 25 per cent rise in its full year profit expectations to between €1.175bn to €1.225bn.
But what do the final few months of the year - a traditionally more fallow period for the sector - hold for the airlines? It seems there are reasons for optimism beyond the obvious macroeconomic factors, such as the low oil price.
One key contributor to the bottom line during the final quarter is business travel. With the summer months a quiet time for business, activity is subsequently kick-started back into full swing to meet project deadlines before Christmas arrives. Out of the UK-based listed airline stocks, British Airways, owned by International Consolidated Airlines (IAG), dominates the business travel arena.
"The legacy carriers have a little less seasonality to them because they have good business traffic," said Gerald Khoo, an analyst at Liberum. "September through to December is one of the strongest periods for business travel as activity picks up after the summer lull." Mr Khoo said business travel only accounted for a small proportion of flights for budget operators such as easyJet and "probably always will".
In spite of this, he said budget carriers have other ways to battle the winter blues, including cost control. "The legacy airlines are more unionised, they have people on full-time staff and will tend to have most functions operated in-house, such as ground handling," Mr Khoo said.
"But easyJet and Ryanair outsource many of these functions and Ryanair makes use of contract crew, meaning they can better manage staff costs," he added.
Cantor Fitzgerald's Rob Byde also leaned the same way. He said IAG had already built in a "fairly positive trading scenario" to its full-year numbers and remained dependent on North Transatlantic flow. Even the addition of Aer Lingus, which the group recently bought, meant access to Dublin Airport but this "also [brings] cost inflexibility".
The broker has IAG on a sell and is much more bullish on easyJet following the company's profit target upgrade.
"I think the budget carriers will have a very good autumn/winter season," Mr Byde said. "We are seeing a recovery in the European economy, which is a positive in terms of people's propensity to fly, and while about 80 per cent of its fuel costs are hedged, there will still be some marginal benefit from the low oil price."
Mr Byde added that recent investor concerns, such as rising landing fees and crew costs, had been "more benign than most forecast".
More broadly for the whole sector, while there has been growth in the number of seats, the amount has been less than anticipated, which is good for yields.
Anand Date, a Deutsche Bank analyst, elaborated on this point, saying some of the airlines he had spoken to suggested capacity growth was in line with passenger demand.
"They could be wrong, but that is what they are saying," he said. "From the data I can see on capacity it does not look unreasonably high and more importantly looks like, at the margin, airlines are looking to trim capacity rather than increase the number of planes."
Research from Barclays suggests low-cost carrier growth "looks to be at its highest level for at least five years" as the likes of Ryanair and easyJet seek to become less seasonal, while some legacy airlines are "returning to growth this winter".
"In aggregate, we do expect the short haul capacity environment to see its fastest growth this winter since 2008 - but at an earnings level, the acceleration is vastly outweighed by the fall in the fuel price, and the short haul demand environment appears very strong," the authors said.
They added that November data suggested broadly similar north Atlantic growth to the peak summer, which could be positive for IAG given roughly 70 per cent of British Airways' traffic is to and from the US.
Another positive sign Deutsche's Mr Date pointed to for airlines was data from Barclaycard. He said the average transaction value for airlines was down 7.1 per cent year on year in February but that this had recovered to being flat in June and down only marginally in July and August. Given that flights are usually booked in advance, this gives Mr Date some confidence about passenger numbers in the early part of Q4.
