JP Morgan predicts a bright summer for European airlines, driven by strong consumer demand for travel and limited capacity compared to 2019, according to a research note.
The investment bank expects that the focus will shift to the strength of pricing and profitability during the summer months.
Although estimates have been revised upwards, the combination of a relatively stable fuel environment and yield outperformance leaves room for further earnings upgrades across the sector.
Despite a 30% increase in the sector's year-to-date collective share price performance, a significant re-rating has not occurred, making valuation multiples appear attractive, the bank said in a note.
JP Morgan has upgraded easyJet PLC to 'neutral' from 'underweight', as strong revenue momentum leads to large estimate upgrades.
However, the bank sees better value in Ryanair Holdings PLC (LSE:RYA), which trades below easyJet's estimated 2024 price-to-earnings ratio.
Wizz Air Holdings PLC (AIM:WIZZ) is placed on a 'positive catalyst watch', with potential upgrades for the year ending March 2024.
Ryanair remains JP Morgan's highest conviction 'overweight' pick, with Lufthansa and Air France-KLM (OTC:AFLYY) also rated 'overweight'. The bank maintains a 'neutral' rating on International Consolidated Airlines Group SA (LSE:IAG).