UBS remains positive on the outlook for European airlines following a month of better-than-expected results in the sector, although the target price for British Airways owner International Consolidated Airlines Group SA (LSE:IAG) was cut.
This followed a second-quarter results season resulted that was better than expected, apart from Wizz Air.
"The outlook from the European airlines was constructive on summer trading on bookings and pricing which resulted in share prices rising across the board over the last 30 days.
"The tone from management in our view was reassuring and European airlines continue to ramp up capacity through the quarters (Click link). We have updated forecasts to reflect the results and revised outlook. In general forecasts are rising for 2023 (partly due to a falling oil) price, but mixed changes for 2022."
Although BA owner IAG returned to profit, analysts at the bank reduced their forecasts for underlying earnings (EBIT) for both this year and next, to €509mln from €621mln for 2022, and to €2.2bn from €2.7bn for 2023.
The analysts also noted the potential for earnings per share to be greatly affected for all airlines by potential moves in jet fuel prices and passenger yield, which is a measure of revenue by revenue passenger miles and is generally an effect of changes to fares.
Due to operational disruptions described by the company as 'short-term', budget airline easyJet PLC (LSE:EZJ) is now forecast to make a loss of £138mln, compared to the £26mln profit previously forecast, but expect a return to profit in 2023 to £369mln.
For Wizz Air Holdings PLC (AIM:WIZZ), adjusted net income targets were slashed to a loss of €450mln from €350mln, although like easyJet, targets for next year were raised to €266mln from €135mln.
Meanwhile, the investment bank believes Ryanair Holdings PLC (LSE:RYA) will be the short-haul carrier least adversely impacted this year, with adjusted income targets raised to €1.4bn from €1.3bn, and to €1.7bn from €1.6bn for next year.
In terms of target prices and valuations, reflected on the 2023 outlook, UBS gave a 'neutral' rating to Wizz Air with a price hike to 2,925p while its valuation of easyJet remained unchanged at 805p, but with a 'buy' rating.
Ryanai's target price was raised to €21 from €19.20 with a 'buy' rating, while IAG’s target price was cut to 170p from 180p, although the shares were still a 'buy'.