Airlines will lose money in the first quarter, but profits from there are set to zoom higher, said Deutsche Bank as it upgraded three European carriers to buy on Friday.
Deutsche Bank upgraded Air France-KLM, International Consolidated Airlines Group and Deutsche Lufthansa to hold from buy, and said the German airline was its top pick.
Air France-KLM
AF,
and Lufthansa
LHA,
shares each rose 3%, and International Airlines Group
IAG,
shares rose 2%.
Analysts led by Jaime Rowbotham say there’s scope for a much quicker recovery in network airline profits than before. Yields, or average fares, will continue to track 20% above precrisis levels for the first nine months of the year, before softening in the fourth quarter. The analysts also say that fuel costs will come down, as jet fuel in the spot market has dropped, while the euro has increased in value.
They acknowledge that nonfuel unit cost targets will be tough to meet, owing to disruptions at airports, air-traffic control issues and potential labor union activities.
Its new operating profit estimates by this year have been hiked by 32% at Lufthansa, by 7% at Air France-KLM and by 16% at IAG.
