FTSE 350: Turbulence in airlines and tourism

But cooler heads may prevail. In November the European Commission published a contingency document presenting new rules to ensure that UK operators can continue to fly back and forth to EU destinations, assuming the UK offers reciprocal arrangements. According to the Commission outlines, the UK would also be added to the visa-free travel list post-Brexit, meaning short-stay travel would avoid disruption. Looks as though those summer holidays can go ahead as planned. Airlines such as easyJet (EZJ) and Wizz Air (WIZZ) are one step ahead of their peer group, and have obtained the necessary air operator certificates so they can continue to fly post-Brexit.

But regardless of Brexit, UK-listed airlines and travel companies are facing turbulence elsewhere. Overcapacity in the European air travel sector is an ongoing concern, resulting in the recent collapse of airlines such as Air Berlin, Monarch and Primera Air. Wizz Air recently interrupted its streak of upping expectations by cutting capacity expansion plans from an 18 per cent increase to 14 per cent during the second half of its financial year to March 2019. This looks like a wise move, as the precaution has so far helped to boost yield and load factor. Rival easyJet has been taking advantage of the difficult times for others by scooping up airport slots left behind, such as those it bought at Berlin’s Tegel airport from Air Berlin.

One might not think that warm weather would present such a problem for travel companies, but during the unusually sunny English summer of 2018 that appeared to be the case. Tour groups Tui (TUI) and Thomas Cook (TCG) both blamed poor summer trading on the hot weather at home discouraging Brits from booking a last-minute holiday. But others say the weather is a scapegoat for more structural issues. Most of this scepticism seems to be centred on Thomas Cook, which ended 2018 with two profit warnings in as many months. Tui has, so far, been more resilient than its rival, which management attributed to the group's "double diversification" – both across destinations and markets. Still, a fall in profits shows that the company has not been immune to these challenging conditions. Investors will wonder if Tui can maintain its resilience through 2019.

Another tourism-related company under pressure to improve its performance in 2019 is Millennium & Copthorne Hotels (MLC). Competitive markets in London and New York have made it difficult to improve revenue per available room and profits. Refurbishments have been under way to draw people back into updated locations, but this has come at a cost in the form of a cut to the dividend. Investors are likely to be wondering whether dividend increases will be reinstated in the coming year once planned refurbishments are finished. Management at InterContinental Hotels (IHG) has taken a strikingly optimistic tone in comparison to Millennium & Copthorne. It’s planning to roll out new rooms at a record pace with a focus on Asia. At the half-year results last year chief financial officer Paul Edgecliffe-Johnson said the Chinese government was keen to support tourism, which makes the hotel sector a clear focus for growth.