EasyJet could ben­e­fit from Ryanair and Monarch prob­lems

We ex­plain why in­vestors are rac­ing to buy shares in the low cost air­line

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Low-cost air­line EasyJet (EZJ) could ben­e­fit from the re­cent drama sur­round­ing its rivals Ryanair (RYA) and Monarch. Ryanair has dom­i­nated the head­lines over the past few weeks after can­celling thou­sands of flights due to an is­sue with pi­lots’ ros­ters. That’s caused se­vere brand dam­age and could prompt trav­ellers to shun the air­line near term.

The dam­age is not yet ev­i­dent in its pas­sen­ger statis­tics as the lat­est fig­ures (3 Oct) show a 10% hike in cus­tomers to 11.8m in Septem­ber.

The UK’s fifth largest air­line Monarch went into ad­min­is­tra­tion on 2 October, lead­ing to the can­cel­la­tion of 300,000 fu­ture book­ings. That ef­fec­tively cre­ates an op­por­tu­nity for other air­lines to cap­i­talise on re­duced com­pe­ti­tion.

EasyJet is widely ex­pected to be among the air­lines in­ter­ested in ac­quir­ing as­sets from Monarch out of ad­min­is­tra­tion with air­port slots seen as one of the ma­jor prizes.

HOW HAS THE STOCK MAR­KET RE­ACTED? We’ve looked at how air­line share prices have moved over the past three weeks which en­cap­su­lates the full pe­riod of in­dus­try dis­rup­tion.

Ryanair is down 6% to €16.92, EasyJet is up 6% to £12.83, Wizz Air (WIZZ) is up 4% to £30.10 and Bri­tish Air­ways’ owner In­ter­na­tional Con­sol­i­dated Air­lines (IAG) is up 1% to 608p. The mar­ket is clearly pric­ing in a more favourable po­si­tion for EasyJet.

BULL AND BEAR CASE

UBS an­a­lyst Jar­rod Cas­tle says EasyJet is likely to ben­e­fit from Ryanair’s is­sues as the cus­tomer base over­laps more with Ryanair’s than Bri­tish Air­ways.

Cas­tle is also en­cour­aged by EasyJet’s planned in­vest­ment in a new cloud-based data hub that should pro­vide per­son­alised of­fers and in­for­ma­tion to trav­ellers.

How­ever, not every­one is im­pressed. Canac­cord Ge­nu­ity an­a­lyst Nigel Par­son con­cedes that in­creased digi­ti­sa­tion should im­prove ef­fi­ciency and cost re­duc­tions, but he ar­gues that the com­pany faces some ‘harsh re­al­i­ties’.

‘The prob­lem for EasyJet is that pas­sen­ger yields are un­der pres­sure and likely to re­main so in the near term,’ says Par­son.

He says com­pe­ti­tion at many of the air­line’s bases has in­creased sig­nif­i­cantly in re­cent years and that this is ex­pected to con­tinue.

De­spite the re­cent flight can­cel­la­tions and re­duced ca­pac­ity growth, Par­son re­it­er­ates Ryanair as his top choice due to its ‘cost base, su­pe­rior mar­gins and strong growth into pri­mary and higher yield­ing air­ports’. (LMJ)

To­tal air­line spend is up by ap­prox­i­mately 1% over the last 12 months, ac­cord­ing to anal­y­sis by UBS.

‘Bri­tish Air­ways seems to be cap­tur­ing most of the in­crease as spend is up ~5% year-over-year, whereas EasyJet and Ryanair are down ~6% and ~1% re­spec­tively (likely due to pric­ing).

‘We ex­pect that Bri­tish Air­ways con­tin­ues to ben­e­fit from fare mix be­tween long haul and short haul as well as pre­mium vs econ­omy pas­sen­ger seats,’ con­cludes the in­vest­ment bank.

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