RBS said long haul premium travel, which has held up so far, should finally fall, especially following the crisis in the financial markets.
It said network carriers are likely to face pressure to remove fuel surcharges, while low cost carriers can continue to apply bag charges.
“Easyjet and Ryanair look better positioned to benefit from the recent airline failures than theEuropean flag carriers,” it said.
Analysts also said fuel makes up a greater part of total costs for low cost carriers than for network carriers and Ryanair and Easyjet have notably less fuel hedging than the three major European flag carriers.
“As we recalibrate our airline models for a new lower oil price — US$90/barrel rather than US$120 — we raise our estimates for low cost carriers by more than for network carriers,” analysts said in the report.
RBS expects Ryanair and Easyjet to suffer from poor productivity this winter as aircraft and staff are used less efficiently.
It said this will raise non-fuel costs, but it expects to see the same phenomenon at network carriers.
Ryanair and Easyjet are hedged against the rising dollar for the next 12 months with RBS saying that thereafter a stronger dollar would be a headwind, but it expects the companies to be benefiting at that stage from improving demand and the roll-off of inefficient hedges and poor productivity.
The bank’s analysts cut their recommendation on network carriers Air France-KLM Group and Iberia Lineas Aereas de Espana.
The bank raised Easyjet and Ryanair to “buy” from “hold” and Air Berlin to “hold” from “sell.”
Air France was cut to “sell” from “hold” and Iberia was lowered to “hold” from “buy.”