HSBC sees easyJet benefiting from Thomas Cook's demise

Analysts at HSBC reiterated their 'buy' recommendation for shares of Easyjet (target price unchanged at 1250.0p) but stayed at 'reduce' on RyanAir (target price unchanged at €8.75) stock in the wake of Thomas Cook's decision to file for administration.

On balance, the path chosen by Thomas Cook should help align the sector's returns with its cost of capital, they said, although "overall the airline industry faces a swathe of uncertainties".

At the individual company level, EasyJet would also benefit from favourable conditions in which to launch its new holidays business and the position of its Air France-KLM's partner Virgin Atlantic.

"The removal of the second largest UK tour operator creates an instant gap in the market and should clearly alter easyJet’s negotiating

leverage with hotels," HSBC said.

"Given its network, easyJet should be well placed to benefit from Thomas Cook’s shut down in Gatwick and Bristol. easyJet is more of a recent arrival in the Manchester market and is not well positioned in the Birmingham market."

HSBC also expected EasyJet would bid for Thomas Cook's slots at Gatwick airport, while benefiting from tighter short-term capacity on leisure routes such as those to the Canary islands.

RyanAir on the other hand would see its balance-of-power with the pilot unions improve, but the investment bank believed that it remained far from an industrial relations equilibrium.

Furthermore, HSBC said: "we see challenges from the 737 Max grounding, its new corporate structure and building environmental sensitivities."

Within the same research note, HSBC stayed at 'hold' on Wizz Air (target price unchanged a 3100.0p).