JPMorgan Cazenove downgraded easyJet to ‘underweight’ from ‘neutral’ on Friday and slashed the price target to 310p from 625p, arguing that non-fuel costs could continue to disappoint, as it took a look at European airlines.
JPM said easyJet achieved structural cost savings of around £250m during Covid-19, but these were almost all offset by other cost pressures.
“The disruption costs this year may be temporary, but we expect the inflationary pressures to remain, so that non-fuel unit costs could disappoint in YE Sep 23,” it said. “Fares may not be able to offset this if we head into a period of weaker consumer demand through winter and into 2023.”
JPM said that given easyJet’s exposure to slot-constrained airports, there is an increased risk that the company is impacted by further disruption and, hence, higher costs/lower yields.
“Our YE-Sep-23E profit before tax of £-229m is the lowest on the street on Bloomberg,” it noted.
The bank placed both easyJet and BA owner IAG on ‘negative catalyst watch’ ahead of upcoming results. It rates IAG at ‘neutral’.
“Given ongoing issues at Heathrow, we also see a risk that IAG further cuts capacity and, so, we see downside risk to Bloomberg consensus, where we are circa 14% below for 2022E EBIT,” it said.
Ryanair, rated ‘overweight’, is JPM’s top pick in the sector. It pointed out that the airline has not experienced the same staffing challenges as other carriers, partly due to retaining more staff during the pandemic.
“We do not foresee RYA having to make meaningful capacity cutbacks this summer (aided by airport mix),” it said.
It also said RYA has the strongest balance sheet in the sector.
