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Investors (and holidaymakers) being overly optimistic about 2021 flight rebound, says Citigroup

The recovery of demand will be “splintered and truncated”, and cash burn for the airlines will persist “to greater levels than expected”, the analysts reckon

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Investors – and possibly also holidaymakers by implication – are being too optimistic about a recovery in air travel in 2021, analysts at Citigroup have warned.

“We remain startled by the complacency priced into the European airline share prices,” the analysts said in a note on Tuesday, the morning after Boris Johnson’s speech about Britain’s planned ‘roadmap’ out of the current coronavirus lockdown.

Prices of airlines appear to be hoping for the European short haul leisure market to deliver more than 50% of levels of supply seen in 2019 this summer (2021), the Citi number crunchers said.

“We are decidedly more downbeat,” they buzzkilled, throwing considerable shade over the holidaymakers that had contributed to rocketing increases in flight and holiday bookings reported on the same morning by the likes of easyJet (LON:EZJ), TUI (LON:TUI).

The recovery of demand will, they reckon, be “splintered and truncated”, with cash burn for the airlines seen persisting “to greater levels than expected” and the industry’s cash calls via debt and equity issues “will remain a theme”.

The analysts said, therefore, pair trades, where a long position is matched with a short position in a closely related stock, is “still in our view the sensible strategy for investors in this sector”.

Citi sees the most challenged names as EasyJet (LON:EZJ), German’s Lufthansa and the Franco-Dutch carrier Air France-KLM.

Meanwhile, the travel team have ‘buy’ ratings on those airlines seen as less operationally geared, namely Ryanair (LON:RYA), Wizz Air (LON:WIZZ) and British Airways owner International Consolidated Airlines Group (LON:IAG).

Quick facts: easyJet plc

Price: 975.8 GBX

LSE:EZJ
Market: LSE
Market Cap: £4.46 billion
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