easyJet and Ryanair downgraded; Air France-KLM and Lufthansa upgraded


European airline shares ended trading with another day of mixed results on Tuesday (22-Jun-2010). Wider markets fell, ending a nine-day surge in shares, as investors moved to take profits from seven-week highs reached the day prior.

In key markets, UK’s FTSE (-1.0%) and France’s CAC (-0.8%) were down for the day. 

Germany's Leading Economic Index (LEI) increased 1.6% in Apr-2010, with the recent behaviour of the composite indexes "suggesting that moderate expansion in economic activity should continue in the near term", according to The Conference Board. The DAX (-0.4%) ended trading lower, despite the improved performance.

easyJet and Ryanair downgraded; Air France-KLM and Lufthansa upgraded

easyJet (-3.1%) took the biggest fall for the day, after JP Morgan Cazenove downgraded the carrier’s shares from ‘overweight’ to ‘neutral’, as the company expects full-service carriers to soon start outperforming LCCs. Ryanair (-0.1%) was also downgraded from ‘overweight’ to ‘neutral’.

Consequently, JP Morgan upgraded Air France-KLM (+0.5%) from ‘underweight’ to ‘overweight’, stating there is a scope for significant price recovery. Lufthansa (+0.3%) was increased from ‘neutral’ to ‘overweight’, due to increasing management optimism and scope for “fairly rapid yield recovery” this year.

JP Morgan Cazenove analyst, Edward Stanford, stated the company expects future share price performance to be primarily driven by “positive earnings momentum”.

See related CAPA Profile: Outlook, Forecasts, Guidance

British Airways/Iberia merger looking more likely

Iberia (+1.3%) also gained for the day after British Airways (+0.3%) announced it has reached an agreement with the trustees of its New Airways Pension Scheme (NAPS) and Airways Pension Scheme (APS) on a recovery plan to address its pension deficits of GBP3.7 billion.

Iberia stated the pension agreement is a “positive step forward in the merger process”. The carriers’ merger agreement enables Iberia to terminate the agreement if the pension recovery plan is not, in Iberia’s reasonable opinion, satisfactory because it would be materially detrimental to the economic premises of the proposed merger. All contributions into the British Airways’ pension funds will continue to be funded by the carrier and will not be funded by Iberia or the merged holding company International Airlines Group. Iberia has three months to reach a decision on the pension recovery plan.

See related CAPA Profile: Mergers and Consolidation

Europe selected airlines daily share price movements (% change): 22-Jun-2010

Want More Analysis Like This?

CAPA Membership provides access to all news and analysis on the site, along with access to many areas of our comprehensive databases and toolsets.
Find Out More