Dragged lower by rising oil prices and a downgrade by Credit Suisse, the stock prices of European airline fell sharply on Wednesday.
Credit Suisse cut the European airline’s stance from ‘overweight’ to ‘benchmark’.
“We can see the close correlation between airlines and the oil price, with much of their recent out-performance resulting from the renewed weakness in the oil price,” said Credit Suisse, as it made the cut.
The oil price has also benefited airlines through the boost it has given to consumer incomes apart from the lowering the costs of airplane fuel, said Credit Suisse.
As opposed to the flag-carriers where up to half of revenue is corporate-related, this phenomenon was particularly true for budget airlines, which are predominantly consumer plays, said the international bank and rating agency.
Despite being optimistic about the present scenario of the European airliners given the low fuel costs, Credit Suisse feels that one of the most significant tailwinds airlines have recently enjoyed would fade away if oil prices were to stabilse or stage a modest recovery.
Signs of deterioration of capital discipline of the airliners is another area that Credit Suisse is concerned about. Historically a low oil price has been associated with an increase in competition and capex to sales has increased, it said.
With earnings revisions boosted by the falling oil price, Credit Suisse said that while valuations are still attractive on 12-month forward P/E relatives and earnings momentum is positive, the latter is at levels where it has historically rolled over.
“On top of that, the sector is overbought,” it added.
After the Organisation of Petroleum Exporting Countries forecast big cuts to oil investments that are expected to slow production and reduce global crude supplies, global oil prices had surged on Tuesday on the major stock markets across the globe. Crude production in September was down 120,000 barrels a day from August, estimated the Energy Information Administration and it said that the output is likely to continue to decline through next August.
Air France-KLM shares were 4.8% lower at €5.82, Easyjet was 4.4% weaker at 1,683p, IAG shares were down 4.1% at 563.50p, Ryanair shares off 3% at €12.81, and Deutsche Lufthansa was 2.6% weaker at €13.08 during the early trading hours in the European markets on Wednesday.
(Source:www.digitallook.com)
Credit Suisse cut the European airline’s stance from ‘overweight’ to ‘benchmark’.
“We can see the close correlation between airlines and the oil price, with much of their recent out-performance resulting from the renewed weakness in the oil price,” said Credit Suisse, as it made the cut.
The oil price has also benefited airlines through the boost it has given to consumer incomes apart from the lowering the costs of airplane fuel, said Credit Suisse.
As opposed to the flag-carriers where up to half of revenue is corporate-related, this phenomenon was particularly true for budget airlines, which are predominantly consumer plays, said the international bank and rating agency.
Despite being optimistic about the present scenario of the European airliners given the low fuel costs, Credit Suisse feels that one of the most significant tailwinds airlines have recently enjoyed would fade away if oil prices were to stabilse or stage a modest recovery.
Signs of deterioration of capital discipline of the airliners is another area that Credit Suisse is concerned about. Historically a low oil price has been associated with an increase in competition and capex to sales has increased, it said.
With earnings revisions boosted by the falling oil price, Credit Suisse said that while valuations are still attractive on 12-month forward P/E relatives and earnings momentum is positive, the latter is at levels where it has historically rolled over.
“On top of that, the sector is overbought,” it added.
After the Organisation of Petroleum Exporting Countries forecast big cuts to oil investments that are expected to slow production and reduce global crude supplies, global oil prices had surged on Tuesday on the major stock markets across the globe. Crude production in September was down 120,000 barrels a day from August, estimated the Energy Information Administration and it said that the output is likely to continue to decline through next August.
Air France-KLM shares were 4.8% lower at €5.82, Easyjet was 4.4% weaker at 1,683p, IAG shares were down 4.1% at 563.50p, Ryanair shares off 3% at €12.81, and Deutsche Lufthansa was 2.6% weaker at €13.08 during the early trading hours in the European markets on Wednesday.
(Source:www.digitallook.com)
