Ryanair, EasyJet shares fail to keep pace with majors

After years of losing business to discount airlines, the major carriers in Europe are gaining strength and outperforming in stock markets.

Deutsche Lufthansa and IAG surged more than 19% in the first quarter. Air France-KLM Group, up 37%, is having its strongest quarter in three years. In contrast, Ryanair is little changed and EasyJet is up just 2.5% for 2017.

That is counter to the longer term trend — Ryanair’s five-year annualised return is 29% versus about 9% for Lufthansa. While Air France-KLM, IAG, and Lufthansa have given better-than-expected guidance on revenue trends, helped by buoyant long-distance flight demand, Ryanair and EasyJet have been cutting fares due to competition on European flights, and have reduced profit forecasts, or turned more cautious. Major European airlines are “upbeat on improved trading” and “optimistic” about ticket-pricing trends, Barclays analyst Oliver Sleath said late last week. The brokerage raised estimates for earnings before interest and tax for Air France-KLM by 70% for this year while lifting Lufthansa’s adjusted Ebit projection 30%.

Some analysts say the share gains are overdone. Bank of America Merrill Lynch analysts yesterday downgraded IAG and Air France-KLM to ‘underperform’ from ‘buy’, saying both face risks on short-and long-haul traffic. For the French carrier, the analysts also cited limited likelihood of the company raising its cost saving targets in the near-term due to the French elections.

Bloomberg