fb

ACCA AUTUMN SAVINGS 20% OFF

You’d think that an airline with grounded planes would have a falling share price? Think again.

You’d think that an airline with grounded planes would have a falling share price? Think again.

At the time of writing this, British Airways’ cabin crews are on strike, claiming that management has attempted to impose harder working conditions on them.  Both the airline and the labour union acknowledge that BA must make very substantial cost savings in order to survive, so the dispute is about where those cost savings can come from.

BA have contingency plans which they claim will get 65% of passengers to their destination, including “wet leasing” aircraft from other airlines. It’s one of the biggest news stories in European business at the moment.

Against a backdrop of record trading losses, costs of a strike (lost revenue, lost goodwill, extra standby costs), you might well expect the share price to fall.

In fact, since the start of 2010, British Airways’ share price has steadily risen by 20%.  The actual announcement of the strikes had no significant effect on the share price at all.  How can this be?

The answer is simply that the share price in an efficient market reflects expectations about long-term future profitability.  BA is seen by many analysts as a company with a great core business, but with simmering problems with unrealistic labour unions and inflated staff costs.  This has long produced a discount on the company’s share price, with low P/E ratio.  The fact that this has erupted into a strike has long been anticipated, so its actual occurrence hasn’t surprised anybody.  Indeed, the market’s confidence in the long-term future of the company appears to be rising, as Willie Walsh, the airline’s CEO, is seen as tackling some of the company’s deepest long-term problems instead of skirting around them.

Regardless of the alleged rights and wrongs of the dispute itself, it’s an interesting illustration of how share price valuation actually happens and how markets for some very deeply traded shares do appear to be rational.

Share this entry

Recent articles

View All Articles
Two jobs, one big mistake…
Sep 10, 2025
Title
Two jobs, one big mistake…
Excerpt

Can you really hold down two full-time jobs at the same time? For most of us, it sounds […]

Cash is (no longer) King…
Sep 08, 2025
Title
Cash is (no longer) King…
Excerpt

For generations, a wallet or purse has been an everyday essential — a small, leather-bound companion holding coins, […]

Nestlé CEO fired over office relationship…
Sep 04, 2025
Title
Nestlé CEO fired over office relationship…
Excerpt

Nestlé is the world’s largest food and beverage company, with a portfolio that includes some of the most […]

When ethical claims backfire: Armani’s €3.5m fine
Aug 20, 2025
Title
When ethical claims backfire: Armani’s €3.5m fine
Excerpt

Luxury brands are often seen as the gold standard of quality, exclusivity, and prestige. They charge premium prices […]

The benefits of sleeping on the job…
Jul 21, 2025
Title
The benefits of sleeping on the job…
Excerpt

My guess is that not a lot of you have gone up to your boss and said that […]

A car wash, wallet and apartment – laundering explained…
Jul 18, 2025
Title
A car wash, wallet and apartment – laundering explained…
Excerpt

Money laundering might sound like something from a gangster movie, but it’s a serious real-world issue that affects […]

Take a selfie and then return it…
Jul 16, 2025
Title
Take a selfie and then return it…
Excerpt

The latest must-have outfit trending on TikTok might be out of fashion by the time it arrives on […]

When auditors overstay their welcome…
Jul 11, 2025
Title
When auditors overstay their welcome…
Excerpt

A cornerstone of audit is independence. A recent stumble by EY – one of the Big Four accounting […]