RBC Capital Markets initiated shares of European airlines Wizz Air (LON: WIZZ) and Ryanair at Outperform, while EasyJet (LON: EZJ), IAG (LON: IAG), and Lufthansa were started with Sector Perform ratings earlier this week.

The investment bank’s analysts told investors in a research memo that they are launching coverage of European airlines, which they believe is at an interesting juncture, benefiting from strong demand and constrained capacity in the recovery from the pandemic.

RBC stated that declining fuel prices offer scope for a triple tailwind…

“Leisure demand is strong, with airline website visitors ~40% above 2019 levels on average,” the investment bank wrote, adding that fuel prices are now down more than 45% year-on-year after peaking in summer 2022, while European airlines “trade at discounts to global peers.”

According to Semrush, web visits to the Ryanair websites are just below their all-time, while Wizz Air’s traffic hit an all-time high (since Semrush records began) in June.

Ryanair and Wizz Air are favoured by RBC as “low-cost carriers have proven the more reliable long-term investments.” In addition, they see upside potential to Ryanair’s 2023/24E guidance” and see Wizz Air’s valuation as “compelling given its growth prospects.”

For EasyJet, the firm’s analysts noted that its Holidays strategy is a sensible means of monetising its brand and leisure-focused network, but they see scope for lower margins and cash generation. For IAG and Lufthansa, the analysts stated that they are concerned about the sustainability of earnings due to challenges in the competitive landscape.

By James Fyeman