HSBC upgrades EasyJet, Ryanair

The bank upgraded EasyJet to ‘buy’ from ‘reduce’ and lifted the price target to 1,150p from 800p.

It upgraded Ryanair to ‘hold’ from ‘reduce’ and raised the price target to €12.00 from €8.50.

“We think the structural challenges facing the European short haul market are widely understood by investors and sentiment should be close to the bottom.

“Among the European low cost airlines, EasyJet and Ryanair are long-term winners in our view, and will see stronger earnings momentum, thanks to more beneficial fuel hedge positions into next year, in contrast to quoted competitors who have substantially benefitted from falling fuel this year.”

The bank noted a preference for EasyJet over Ryanair and attributed it to the fact that EZJ is currently trading on consensus margins below its cyclical mid-point, having faced a confluence of challenges from Brexit, terror attacks and operational instability.

Ryanair, on the other hand, is trading above its long-term mid cycle margin, benefiting from the revenue uplifts from its successful repositioning, some two years later than EasyJet saw its margins peak.

HSBC was also keen to highlight the differences between EZJ and RYA and their peers.

“Given their out of the money fuel hedges this year and better hedges into CY17, both easyJet and Ryanair will have considerable fuel cost savings into next year. By contrast, the quoted low cost competitors Wizz and Norwegian, have had more beneficial fuel costs this year and will face fare less benefit from fuel next year.”

At 0900 BST, Ryanair shares were up 1.5% to €12.92 and EasyJet shares were up 3.1% to 969.95p.

Ryanair released its traffic stats for October earlier on Wednesday. They showed traffic was up 13% to 10.9m customers, while the load factor – which gauges how full the planes are – nudged up to 95% from 94%.