British Airways strands 75,000 passengers, produces an explanation as solid as a paper aeroplane, and sees its reputation trashed. This triple whammy was surely enough to poleaxe the share price of IAG, BA’s parent. Except it did nothing of the sort.

The morning markdown last Tuesday quickly produced buyers, and by Wednesday lunchtime the price was back to the previous Friday’s close. Even with the company wading in for its buy-back programme, this looks a curious response by the market. After all, compensation claims could top £100m, while the damage to a reputation already dented by irritating cost-cutting measures will take years to restore.

Yet the market’s response is not irrational. The conclusion traders drew was that the misery inflicted and the incompetence shown doesn’t really matter. The world’s major airlines have a powerful position in a growing industry. If it is not quite an oligopoly on long-haul, there is at least an argument that they are not competing so hard as to damage the bottom line.

Bloomberg’s Matt Levine has a theory that since the major US airlines are largely owned by the biggest fund management groups, it’s in their interest to see all carriers’ earnings improve. “An airline that cuts fares or spends money on better service to win market share isn’t necessarily doing its shareholders any favours.” He quotes airline analyst Jamie Baker at JP Morgan Chase that competition nowadays has more to do with winning an investment grade rating, or entry into the S&P 500, than with serving customers.

This would help explain why flying on American airlines is so ghastly. It does not take into account the growing, subsidised Middle Eastern carriers on long haul, or the thorough drubbing inflicted on BA by the low-cost carriers in Europe. As Alitalia has proved, the so-called flag carriers are still struggling to find a convincing response to this problem. However, the stock market’s response to BA’s little local difficulty suggests that inflicting misery on the passengers is not something that bothers investors unduly.

Don’t cry for me, Venezuela

When it comes to beating up Goldman Sachs, any stick will do. Last week’s, wielded by Ricardo Hausmann, a former Venezuelan government minister, accuses the bank of buying “hunger bonds” a melodramatic description of the purchase of some distressed debt, described by the country’s opposition lawmaker as “making a quick buck off the backs of the Venezuelan people.”

This is a bit rich. Goldman’s asset management arm reportedly paid 31 cents on the dollar for 6 per cent bonds issued in 2014 by the Venezuelan state oil company and which, bizarrely, had been held by its central bank. Given the parlous state of the country’s economy, a quick buck is not the most likely outcome. Crudely, the purchase price says default is twice as likely as repayment.

Venezuela is a shocking example of how bad and corrupt government can ruin a country regardless of its natural wealth, but other attempts to force change in repressive regimes by cutting off access to international markets have not ended well. If and when Venezuela’s nightmare ends, agreement with the bondholders will be part of the solution. Goldman, like Tom Lehrer’s old dope pedlar, will then have the chance to be doing well by doing good.

Not just one way, after all

Warning: the value of your investment can go down as well as up, and past performance is not a guide to the future. This familiar rubric is not usually associated with house purchase, but after three straight months of decline, it should be. The ingredients for a bear market, starting in the buy-to-let flats sector, are all there: a worsening tax position, waning interest from overseas and a dramatic increase in supply.

Nowhere is this more apparent than along the south bank of the Thames near Battersea Power Station. Its four chimneys have been brilliantly rebuilt, Apple is moving in and the American embassy adds cachet to the area, but the sheer volume of 20,000 new flats is putting downward pressure on rents. Buyers who paid a deposit to buy off plan, looking to flip the purchase before the bill arrives for the balance, face a painful back flip instead.

Advertisements