It was pleasing to see the Thomas Cook Group (LSE: TCG) share price climb 10% on Thursday morning. To put that into perspective though, its really only a small blip of contrarianism in what has been a steady downwards slide. The shares have lost 85% of their valuation over the past 12 months.
Ive suggested before that I think Thomas Cooks valuation is close to factoring in the risk of the worst possible outcome, and thats for the company to go bust. But the more I look at the company, and the urgency with which its tackling its crisis, the more Im becoming convinced its going to survive.
Debt
So could we have a turnaround target here? My colleague G A Chester has recently examined that possibility, and he pointed to what does indeed seem like an ominous move. Thomas Cooks survival depends, to a great extent, on tackling its huge debt mountain and were talking about 1.2bn here, which isnt small change.
To do that, the company seems to have switched focus to satisfying its lenders, without the support of whom it could disappear overnight, and away from its stated earlier focus on shareholders. Unfortunately for shareholders, I think that switch in focus is necessary.
Also, dumping assets is good. But its a bit of a fire sale right now at a low point in the travel business cycle.I think the company is doing all the right things to ensure survival, but I cant see there being much at all left for shareholders. Thomas Cook is still one to avoid at all costs, in my view.
Best in class?
Looking at International Consolidated Airlines (LSE: IAG) Wednesday, I mused on how the whole airline business is one Ive always avoided.
Of the UK listed airlines, I rate easyJet (LSE: EZJ) as possibly the best. But a look at its share price chart in recent years lends support, I think, to my avoidance strategy.
The easyJet dividend is one of the airlines key strengths as an investment, in my view, and its been reasonably consistent in cash terms over the past five years. But a gyrating share price has seen the yield lurching from low of around 3% to more than 5%, with forecasts suggesting about 4.4% for the current year.
Price loss
Now, thats a solid rate of income, and one that would usually qualify a stock to at least make my watchlist. But the share price has been alternating between soaring and slumping over the same period. A 39% drop in 12 months is the latest in a five-year fall of 29%, resulting in an overall loss even despite those attractive dividends.
Focusing on the short-haul European market has made easyJet more susceptible to short-term downturns, and Brexit fears will have led to some of the sell-off.
But the bottom line is that airlines do well when oil prices are low, and not so well when theyre high. They compete only on price, and fuel costs are a big part of that and utterly out of an airlines control.
I see easyJet as a well-managed company in a nasty business, and its definitely not for me.
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