Berenberg raises price target on Easyjet

Berenberg raised its price target on shares of budget airline EasyJet to 1,260p from 1,150p on Tuesday, saying the collapse of Thomas Cook added confidence to its view that the group would achieve margin outperformance over the coming year.

Berenberg said Thomas Cook, which went into administration on Monday, was set to represent over 2.5% of European short-haul capacity in 2020. Its demise could remove as much as 5% of competing seats from EasyJet's network in peak quarters, the bank said.

Standing by its 'buy' rating, Berenberg said that even if demand slows, pricing should continue to benefit from incremental capacity deceleration from both easyJet and the industry overall.

"We expect recent airline distress to support pricing that disproportionately benefits easyJet," said Berenberg which also noted ongoing liquidity issues at Aigle Azur, XL Airways and Slovenia's Adria Airways.

"We also think there is continued evidence of supply restraint by the industry in part due to 737 MAX and A321neo delivery delays."

The bank lifted its pre-tax estimates for EasyJet by 3% - marking to market fuel, currency and unit revenue slightly higher on competitor distress.

"We now expect EasyJet's H1 2020 revenue per seat to be up 3.2% year-on-year (excluding-currency), circa 50bp higher than previously," it said.

There could be further upside if more airlines in EasyJet's markets fail and in the case of prolonged 737 MAX delays, it added.