Liberum said on Tuesday that it continues to favour easyJet, IAG and Ryanair in the airline space, and that it remains optimistic there will be a resumption in the relaxation of travel curbs.
The broker said in a note that the latest update of its ‘Travel Restrictions Index’ shows a pause in the easing of government measures.
“We do not expect this to last long, and remain optimistic that there will be a resumption in the relaxation of limitations on international travel as the Omicron wave passes,” it said, adding that airline capacity plans appear to mirror this assumption.
The broker said it still sees Easter – the start of the peak summer season – as being the key test for the industry.
“We remain hopeful that restrictions will be eased appreciably for travel at Easter, with sufficient advance warning to allow a degree of forward bookings with confidence,” it said. “If that is the case, we would expect strong pent-up demand to be evident.
“If this encounters capacity that remains below 2019 levels, the outlook for average fares would be positive. That said, elevated jet fuel price levels could erode bottom line benefits, especially for airlines that are poorly hedged.”
Liberum said that in an environment that is still “uncertain and volatile”, even with a clear direction of travel, its focus remains on the higher quality groups.
“The recurring theme in the recovery phase of past airline industry crises has been low-cost carriers gaining market share at the expense of legacy carriers,” it said.
“The long-term structural winners have seen accelerated gains in the aftermath of periods of industry turmoil. This supports our positive stances on easyJet and Ryanair. In the context of the network carriers, we see IAG as the structural winner, with an efficient cost base and a balance sheet unburdened by state aid.”
Liberum rates all three at ‘buy’.
