Liberum cuts easyJet, Ryanair targets on summer fears

LIberum cut its price targets for easyJet and Ryanair and said airlines faced a growing risk of tight Covid-19 restrictions extending into the crucial summer season.

Analyst Gerald Khoo kept his 'buy' rating on easyJet but reduced his price target for the airline's shares to £10 from £12. Khoo also cut his price target for Ryanair to €15 from €17 and stuck. to his 'hold' rating. He increased his target for IAG shares to 150p from 100p with a 'hold' rating.

Khoo said he was relaxed about tougher coronavirus restrictions in the first quarter, which is usually airlines' quietest period. He said demand over the peak summer season was far more important to earnings and value.

New strains of Covid-19 are prompting governments to tighten international travel restrictions. If the airline industry suffers a second summer of cash burn some carriers may need to raise cash to strengthen balance sheets Khoo said. Rolls Royce cut its forecasts for engine flying hours on Tuesday and predicted higher cash burn.

"We perceive a material and growing risk that restrictions on international travel remain onerous for longer than we had previously anticipated," Khoo wrote in a note to clients. "We now see a chance that significant restrictions remain in place and impact at least part of the peak summer season, jeopardising plans to begin rebuilding air travel demand and balance sheets."

Khoo said the impact on summer trading depended on the success of current restrictions in stemming infections, progress for vaccination programmes and the relaxation of travel restrictions, especially for unvaccinated passengers.

Liberium favours short-haul exposure to long-haul because the industry's recovery will be led by leisure travel and visits to friends and relatives within Europe where restrictions would be released faster, Khoo said.

EasyJet's focus is on these areas and the market has overlooked measures to address past non-fuel cost problems, Khoo said. He cut his 2021 revenue estimate 14% to £3.53bn. Ryanair is the market leader but its strengths are reflected in the share price, Khoo said, cutting his 2021 revenue estimate 17% to €1.57bn.

British Airways owner IAG will recover more slowly, Khoo said, but he increased his price target to reflect fair value and improved visibility.