Pressure still on for BA, despite the Iberia deal

BRITISH AIRWAYS&rsquo; agreement to a $7bn merger with its Spanish rival Iberia has highlighted just how much the airlines have struggled during the recession. A surging oil price ahead of the financial crisis had put pressure on costs, which saw both businesses and consumers tighten their belts, causing passenger numbers to slump. <br /><br />The merger, said the two companies, will provide &ldquo;enhanced scale to compete with other major airlines and participate in future industry consolidation.&rdquo; It&rsquo;s a nice sentiment, but despite their best efforts, has the recession marked the demise of flagship carriers? Budget airlines such as easyJet and Ryanair are rapidly gaining market share. But on the other hand, the likes of BA still have large numbers of business travellers. So which airlines should contracts for difference (CFDs) traders be looking at? Is BA now more attractive than it was before the merger announcement?&nbsp; <br /><br />One thing is for sure: things can only get better for BA. &ldquo;Over the past five or so years, BA have found themselves in the middle of no man&rsquo;s land,&rdquo; says Alastair McCaig, senior derivatives trader at CFD-provider WorldSpreads. &ldquo;It isn&rsquo;t the cheapest of the cheap but it&rsquo;s not a luxury airline either. It&rsquo;s in the middle ground, which is not the place to be, in my opinion.&rdquo;<br /><br />The tie-up with Iberia will make the merged company the third largest airline in the world by revenues and it is expected to create synergies of &euro;400m per annum by 2015. But Citigroup analyst Andrew Light says that the implementation costs of &euro;350m over four years seem high and suggest that substantial job losses are on the horizon. <br /><br />Since its lows of 116p back in February, BA has seen its share price double to 239p before slipping back towards the 200p mark. While that is fairly impressive, you would have hoped for a more convincing rally from the likes of BA, given how low crude oil sank from its July 2008 peak of $147, says McCaig.<br /><br /><strong>LIQUID STOCK</strong><br />BA is certainly more liquid than other airlines stock, which is appealing to traders looking to jump in and out of the market. But in the short-term, CFD traders looking at airline stocks might be better to consider easyJet, which is reporting its full-year figures this morning. It has already signalled that it will be one of the few airlines to report a profit this year and analysts see the stock as having very strong earnings momentum over the coming years.<br /><br />As for the future, there are signs of recovery in the sector. Aircraft makers Airbus and Boeing said yesterday at the Dubai air show that their market had hit bottom and would start to improve. Whether this improvement will be felt by BA-Iberia is still unclear. BA has been plagued by a string of problems, from staff discontent to the disastrous opening of Terminal 5. Its place in the middle ground may see it edged out by the luxury Gulf airlines such as Etihad and Qatar Airways on one side and budget airlines on the other. <br /><br />Turbulence is ahead<br /><br /><strong>CFD PROFILE </strong> BARCLAYS<br /><strong>Commission: </strong>0.1 basis points<br /><strong>Margin Requirement: </strong>10 per cent<br /><strong>Trading hours:</strong> 8am to 4.30pm UK time<br />(information from GFT)<br /><br />Barclays was one of the few high-street banks in the UK to escape government measures and investors eagerly took this on board. From the dark days of late <br /><br />January when the bank was trading as low as 50p, the stock has since staged an amazing return, closing at 324p yesterday evening.<br /><br />It posted strong third-quarter earnings results, as strong investment banking fueled a &pound;1.56bn net profit and the bank restarted dividend payments. It also said that bad debts may be past their peak. <br /><br />Some analysts have started to call the bank&rsquo;s share price toppy. But compared to RBS and Lloyds Banking Group it is streets ahead, and it&rsquo;s cheaper than its main UK rival, HSBC.