International Consolidated Airlines Group, the merged British Airways and Iberia, is leading the market fallers after a profit warning from rival Lufthansa.
The German airline said it no longer expected this year's profits to beat last year's figure because of the current economic uncertainty. The industry has been hit by a number of problems, including the unrest in the Middle East and Africa, the Japanese tsunami and the rising cost of fuel. Gerald Khoo at Espirito Santo said:
Although we had been bearish on the outlook for 2012 for the airlines, we had expected 2011 to hold up based on a reasonably good summer performance. Clearly this has not been the case for Lufthansa, and the read-across is negative for the other airlines, in particular the network carriers (IAG and Air France-KLM ).
IAG has dropped 4.2p to 150p, a near 3% fall in a market which is still moving higher despite the continuing worries about the Eurozone debt crisis. The company is interested in bmi, the airline business put up for sale by Lufthansa, and other reported targets include Portugal's TAP. Espirito Santo said:
Any deals would be likely to be characterised by short-term pain for long-term gain, and a negative for sentiment unless offset by highly attractive financial terms.
