Ryanair Holdings PLC (LSE:RYA) is "a long-term winner", said broker Liberum, but added that short-term pressures in the market have led it to downgrade its rating to 'hold', with the target price cut to €11 from €16.5.
Analysts at the bank believe the discount airline group is on course to return to pre-pandemic levels of profitability after a strong summer.
However, consensus beyond this year appears to “imply a series of optimistic assumptions that may leave little room for outperformance”, Liberum said.
That includes a double-digit fare increase for next year, which is not impossible but requires restraint in capacity plans by the industry and avoidance of recession, it said.
Additionally, while low-cost airlines tend to fare better in times of recession, they are still not immune.
Liberum noted potential opportunities to generate incremental savings, including the carrier's Boeing 737-8200 MAX aircraft burning 16% less fuel and having 4% more seats, as well robust negotiations on airport charges, with slower recovery in capacity from competitors adding to its bargaining power.
However, Liberum expects this to be balanced by inflation from air traffic control charges at airports where it does not have discount deals in place.
Still, the broker believes Ryanair is a long-term winner in the European airline industry, underpinned by its market leadership in the Europe's short-haul market, low unit costs, robust exploitation of its bargaining power wherever possible, pan-European network footprint and strong balance sheet.