CREDIT Suisse has initiated coverage of Ryanair with an 'outperform' rating, while the institution expects British Airways, headed by Willie Walsh, to generate the best return on equity among all European airlines this year as corporate spending rebounds.
Analysts, including Neil Glynn, said in a report on the aviation sector published yesterday that BA was "attractively positioned", given its heavy exposure to premium demand and a recovery in transatlantic traffic recovery.
They added that short-haul restructuring at Air France KLM, Iberia and Lufthansa should work in favour of Ryanair and Easyjet as the two low-cost carriers built out their networks.
BA, whose 13,000 cabin crew are likely to ballot for strike action when they take a fresh vote next week, has been named a top aviation-stock pick for 2010 by Credit Suisse, alongside Iberia. The two airlines are planning to merge by the end of this year.
Credit Suisse has placed a price target of €4.50 on Ryanair, whose stock price has already risen on the prospect of more than €1bn in cash being returned to shareholders within a couple of years after efforts to seal a deal to buy 200 aircraft from Boeing collapsed before Christmas. Ryanair shares traded up almost 3c at €3.40 yesterday.
Credit Suisse said Ryanair's investment case was attractive over the medium- to long-term as strong cash-flow generation prospects outweighed short-term negatives.
Fare pressure had been "particularly intense" for Ryanair since March last year.
"We see it as challenging for Ryanair to achieve significant fare increases in its 2011 financial year as it continues to grow capacity at double-digit rates in a depressed leisure travel market," said the Credit Suisse document.
"We expect it to fall short of consensus-earnings-per-share expectations for the year," it added.