25th Apr 2022 14:03
(Alliance News) - A potential tie-up between easyJet PLC and Wizz Air Holdings PLC is something that may need to be "re-visited", analysts at Davy said on Monday, with the duo not having enough firepower alone to compete with Ryanair Holdings PLC.
Wizz Air shares were 1.2% higher at 3,157.00 pence each in London on Monday afternoon. easyJet was up 1.5% at 577.00p. Wizz Air currently has a market capitalisation of GBP3.32 billion, below easyJet's GBP4.55 billion.
Ryanair was down 1.0% in Dublin at EUR14.51. It has a market cap of EUR16.46 billion, so would remain almost double the combined pair's size.
The Dublin-based carrier has made market share strides, Irish stockbroker Davy said.
"Very large market share gains have been made by the major low-cost carriers. Ryanair, for example, is 20% now in seats (pan-European) and double that in major markets such as Italy," Davy said.
"We believe an easyJet/Wizz merger should be revisited as neither will on a stand-alone basis truly be able to compete with Ryanair on a pan-European level."
easyJet back in September said it rejected an unsolicited preliminary takeover approach. easyJet did not name the bidder, though explained at the time it was no longer considering a deal.
The Financial Times later reported that the bidder was Wizz Air.
Davy's warning for easyJet and Wizz Air came in a wider airline-related note that was optimistic for the industry.
Davy said "it's going to be a beautiful summer" for a sector which has recently had "the kitchen sink" thrown at it.
Airlines have fought "Covid, a war, decades-high inflation and lately USD1,000 per metric tonne fuel prices", the broker said.
Davy added: "While the latter in particular will hit estimates, the unknown is the revenue environment. We continue to believe that airlines are early cyclical – revenue inflection points are coming this summer, certainly on short haul. We favour Ryanair and easyJet in that order."
Away from low-cost carriers, Davy noted Deutsche Lufthansa AG has the "strongest balance sheet", while International Consolidated Airlines Group SA's enterprise value still trails pre-pandemic levels.
Network airlines, so those such as Lufthansa and IAG's British Airways, will turn to ticket price hikes to combat rising fuel bills.
Low-cost carriers will benefit from rising ticket prices as well as "dynamic pricing" of ancillary products, such as in-flight food and drink which are typically not included in their ticket prices.
Davy added: "The short-haul schedules point to a pick-up in seats to 94% of 2019 levels by end-June; long-haul will be 75% with transatlantic approaching 90%. The market remains somewhat supply constrained – labour, capital and aircraft. With three years of pent-up demand, demand should in theory be up double digit on 2019."
By Eric Cunha; [email protected]
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