Sharetrack investors looking for opportunities in the tourism industry have the options of the hotels and airlines sectors available to them. Hotel stocks are traditionally seen as cyclical, moving in line with the ups and downs of the economy. They tend to have high operational gearing, as the cost base is predominantly fixed. Concerns about a global slowdown have caused the hotel sector to fall somewhat out of favour in recent times.
The Irish hotel group boasts the advantage of exposure to the robust domestic economy.
The outbreak of foot-and-mouth disease has compounded the sector's difficulties as a result of travel restrictions, the cancellation of major sporting and cultural events and a fall off in visitors from overseas.
However, the impact of the scare should be limited to the short term. The asset value of the underlying hotel real estate is another factor to take into consideration for investors.
While foot-and-mouth has had an adverse impact on Ryan Hotels, trading in the last few weeks has seen a marked upturn. The company will shortly change its name to Gresham Hotels plc to reflect the new brand, which will be used to market the four-star corporate and city break hotels. The Ryan brand will be retained at the Galway and Killarney hotels where the focus remains on the leisure and family holiday sector.
The company's share price is at a significant discount to its net asset value of 163 cents and management has stated it is committed to a policy of realising property value that exists within the group.
There are growing fears that the world's airlines are facing the worst slump in almost a decade due to a combination of slowing economic growth, high fuel prices and rising labour costs, particularly in the case of pilots. The Bloomberg European Airlines Index has lost almost one third of its value since February 1st.
European airlines saw passenger traffic fall in April, the first decline in a decade. Despite this malaise in the wider airlines sector, the low fares end of the market continues to perform strongly, given its growing popularity and greater resilience in any economic slowdown.
The two airline stocks in Sharetrack highlight the contrasting fortunes within the sector.
Lufthansa has lowered its profit outlook on the back of global economic weakness, rising oil prices, strikes by pilots and increased pilot salary costs. Conversely, Ryanair continues to go from strength to strength and has just reported a 37 per cent increase in earnings per share for the year to March 2001. The company has used its website to drive distribution costs down by 60 per cent in the last year and recently concluded a five-year pay agreement with its pilots.
The group looks very well positioned, both strategically and financially, to take advantage of the developing European low fares market and to continue to grow strongly.
Conor Walsh is an equity analyst with Goodbody Stockbrokers
