Ryanair and low-cost airline rivals likely to cut prices

Ryanair and its low-cost rivals are likely to have to cut ticket prices to stimulate growth, according to Irish stockbrokers Davy.

A new report by analyst Ross Harvey points out that earnings downgrades have cost European airlines 20 per cent of their value in the last two months.

He notes that low-cost airlines such as Ryanair are continuing to see strong growth and are selling a greater proportion of their seats.

However, he says that this now requires the “greatest degree of price stimulation” in more than two years.

Unit revenues were down in the second quarter of the year and, while it is improving, peak summer pricing is weak.

He says that Ryanair carries the best cost momentum going into the second half of 2016, which supports the airline’s own predictions for its full-year performance.

Mr Harvey also argues that Aer Lingus parent, International Airlines Group offers good long-term value.

Ryanair is Davy’s best pick in its industry and the firm believes that its shares should reach €14.

It believes that IAG will maintain its long-term targets when it holds a capital markets day in November.

However, Davy is cutting its price target for German carrier, Lufthansa and is switching Air France KLM to neutral from outperform.

It also notes that should problems such as air-traffic control strikes ease, Ryanair’s rival EasyJet has the most to gain.