Goldman Sachs has upgraded its rating for Ryanair PLC (LON:RYA) and downgraded that for British Airways-owner International Consolidated Airlines Group PLC (LON:IAG) in a review of the airlines sector swiching preference to the budget carriers.
In a note to clients, analysts at the US investment bank noted that ‘flag carriers’, like IAG, have outperformed low-cost carriers (LCCs), like Ryanair, by 65% vs. 29% in the year-to-date, benefitting from a cyclical recovery in long-haul pricing.
They said: “We believe the next leg of airline performance will be driven by structural trends: (1) potential capacity exits from financially challenged airlines and (2) Ryanair accelerating growth in Germany.
“Hence, we shift our preference to LCCs, which we expect to be the main beneficiaries of consolidation and improving short-haul supply demand.”
Ryanair, Wizz Air seen as main beneficiaries
The analysts said they see Ryanair and Eastern Europe-focused budget airline Wizz Air PLC (LON:WIZZ) as the main beneficiaries of potential legacy carrier exits.
They downgraded their stance for FTSE 100-listed IAG – which also owns Iberia, Aer Lingus and Vueling - to ‘neutral‘ from ‘buy, following outperformance this year, reducing their target price to 645p from 705p.
The analysts, conversely, upgraded Ryanair’s rating to ‘buy’ from ‘neutral, with an increased price target of €22.0, up from €14.9.
They reiterated a ‘buy’ rating on FTSE 250-listed Wizz, with an increased target price of 2,750p, up from 1,960p, but removed the stock from their Focus List, following outperformance in the year-to-date.
The analysts also raised their target price for eastJet PLC (LON:EZJ) to 1,300p from 970p, while retaining a ‘neutral’ stance on the FTSE 100-listed budget airline.