Credit Suisse backs easyJet's Germany strategy

Credit Suisse has backed easyJet, arguing that the budget airline is successfully navigating a difficult market.

Earlier this year, easyJet warned on profits after economic uncertainty and Brexit saw passengers put off holidays.

But Credit Suisse said that easyJet’s winter capacity plans “suggest it is churning underperforming routes which should be positive for margins over time”.

In particular, the bank applauded moves by the budget carrier to address its German assets. “Germany has been a sore point for easyJet since its acquisition of Air Berlin assets at the end of 2017, and contributed to -13% PBT margin, which compares to a 0% to -4% winter PBT margin over 2013 and 2016.

“We highlight that easyJet’s biggest capacity shifts in winter 2019/20 are focused on optimising the Berlin schedule and moving capacity from Lufthansa hubs to areas of easyJet strength.

“This is a strategy designed to improve pricing and margins, and inspires confidence that full-year 2020 pricing can grow despite demand doubts, with total network capacity growth likely limited to around 3% for the year.”

Credit Suisse, which has an ‘outperform’ rating on the stock and a price target of 1,206p, concluded: “The fact that it is trading significantly below fleet value illustrates the market is pricing in considerable value destruction, despite positions at primary airports [and] a network attractive enough to be tempting partners from Europe, the Middle East and APAC to connect to it.”

As at 1330 BST, shares in easyJet were down nearly 3% at 1,010p.