JPMorgan favours budget airlines over legacies, downgrades IAG

JPMorgan Cazenove has downgraded its recommendation for British Airways owner IAG from 'overweight' to 'neutral' after reassessing its stance on the European airlines sector.

The bank said it favours low-cost carriers (LCCs) strongly over legacy airlines, as it upgraded its rating on Ryanair from 'neutral' to 'overweight', retained its 'overweight' stance on Easyjet and initiated coverage on Wizz Air at 'overweight'.

European legacy groups Deutsche Lufthansa and Air France-KLM were both downgraded to 'underweight' from 'neutral' and 'overweight' respectively.

"We are realigning our European airline ratings with a clear bias towards LCCs, which we believe offer superior risk/reward and continued growth potential while legacies remain exposed to unrelenting Middle Eastern competition and suffer from stagnating margins," JPMorgan said.

Transatlantic capacity growth for legacies will rise to over 7% during the summer peak, while capacity between Western Europe and the Middle East continues to grow at a 15% annual rate.

Meanwhile, currency movements are offset most of the benefit from lower fuel costs, the bank said.

IAG was trading 0.6% lower at 594.7p by 11:09.