John Menzies knocked by cost-cutting airlines

AS BritS get ready to pack their bags and jet off on their summer holidays, it might seem like business as usual for airlines.

But make no mistake, the industry has been struggling for a while due to a vicious price war.

A warning on profits from services group John Menzies yesterday highlighted the problems facing the wider industry. the firm, which manages behind-the-scenes activities at airports, said that performance was disappointing between January and June.

Menzies Aviation staff operate in 219 airports in 37 countries, and are hired by carriers such as Lufthansa, KLM and Norwegian Air for work that includes refuelling, cleaning planes and handling baggage. the Edinburgh-based firm has been knocked by cuts in the number of flights that airlines are running, and other cost-trimming measures from some customers.

in a trading update, Menzies said that profits will be no higher than last year, when it made £55m.

A rapid expansion by budget airlines across Europe over the past decade means there are now more plane seats available than there are customers. And fears about the growing expense of foreign travel due to the weak pound has also had an effect, with Britons increasingly opting for ‘staycations’ in the UK instead.

Menzies shares fell by as much as a fifth in early trading, but ended the day down 9.8pc, or 45p, at 413p.

On the other side of the Atlantic, Wall Street dropped in early trading as investors bet that the US Federal reserve is less likely to cut interest rates than previously thought. Official figures showed that American companies created another 224,000 jobs in June, which was much stronger than the 160,000 that analysts were expecting. Normally job creation is a good thing, but on this occasion the surprisingly good data sent the market down. this is because poor employment data would have piled pressure on the Fed to shore up the economy by cutting rates later this year, usually a good thing for share prices. With a cut looking less likely, the

Dow Jones fell around 0.2pc. that Friday feeling obviously eluded the FTSE 100 too, which closed down 0.66pc, or 50.44 points, at 7553.14.

Much of this was due to a slide in the price of major mining stocks, after metal prices fell.

iron ore dropped 6pc after China’s leading steel makers urged their government to bring in price controls. the ore has surged almost 70pc to record levels so far this year, and some critics suspect illegal cartels are behind the boost.

Rio Tinto shares fell 3.8pc, or 188p, to 4723.5p; Evraz was off 3.7pc, or 24p, at 629p; and BHP dipped 2.8pc, or 55.4p, to close at 1955.6p.

Housebuilders also slipped, after building supplier SIG posted lower sales during the first half of the year and said there had been a marked slowdown in the UK construction market.

the downbeat update sent shares in FtSE 250-listed SiG 5.3pc lower by the close, down 7p to 125.4p.

And the effect was contagious, weighing on blue-chip housebuilders such as Persimmon (down 2.1pc, or 41.5p, to 1922.5p), Berkeley (down 1.9pc, or 70p, to 3723p) and Barratt (down 1.6pc, or 9.6p, to 574.4p).

Building companies are considered to be bellwether stocks, meaning they are some of the share prices that most closely track the state of the economy.

Veterinary pharmaceuticals group Dechra closed down 1.7pc, or 48p, at 2784p, losing some earlier gains after it announced it has upped its stake in Australian firm Medical Ethics – a private research company that specialises in how to treat wounds in animals and humans – to 48pc. it spent £8m on the extra 15pc stake.