EasyJet seen as takeover target in shrinking European airline market

EasyJet could emerge as a surprise takeover target in an expected further wave of consolidation in the European airline sector, Davy Stockbrokers has said.

The Luton-based airline is the fifth largest European carrier and is second only to Ryanair in the low fares sector.

"We think industry consolidation is likely to continue and argue that even EasyJet could be a target over the medium term," Davy analysts Stephen Furlong and Ross Harvey said in a research note on the sector.

"We expect further consolidation to come from a mix of organic consolidation, M&A [mergers and acquisitions] and market exits/bankruptcies - perhaps quicker than the market would think," they said.

"It may not feel like it, but the structural underpinnings of the European airline sector continue to improve. Those that deliver - the five leading airlines - now control over 60% of intra-European capacity and almost 90% of profits. The rest - except for [Hungarian budget carrier] Wizz - are characterised by a long tail and are struggling," they said.

EasyJet recently took an Austrian-based air operators' licence to protect its flying rights within the EU after Brexit. It is also majority owned by EU nationals, which also complys with EU ownership rules.

Its shares were moderately down on a mixed day for airline stocks. But EasyJet and Ryanair, Aer Lingus and British Airways-owner IAG, and Lufthansa are all down between 29% and 33% in the last 12 months.

EasyJet confirmed it is interested in the operations of Aigle Azur at Paris' Orly Airport. The French airline went into receivership last week, suspending flights and leaving 19,000 passengers stranded.

Air France-KLM shares dropped by nearly 10% on the back of it saying last-minute demand in the crucial summer season has been disappointing and August passenger figures were mixed. Investors also reacted cooly to news of it being a likely bidder for the Aigle Azur business.

Investors in airline stocks were also shaken by the start of a two-day strike at the British Airways unit of IAG, whose shares fell by nearly 2%.

- Additional reporting Bloomberg