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Credit Suisse confirms 'outperform' rating on IAG
Analysts at Credit Suisse took a look at British Airways parent company IAG on Tuesday, highlighting the potential headwinds the group might end up facing on its major routes as a result of the ownership requirements under the kind of 'Open Skies' agreement currently being negotiated by UK and US officials.
IAG's US flights, which accounted for roughly 30% of IAG's capacity and were the largest contributor to its profitability, might suffer as a result of the requirement that British Airways be majority UK owned. At present it is, but as a part of Spain's IAG.
Other firms such as Virgin Atlantic and Norwegian UK may also suffer considerable setbacks after March 2019 for the same reason.
"In our view, the US carriers serving Heathrow (LHR) are likely to be opposed to restrictions on UK-US service levels. Prior to EU-US Open Skies launching in 2008, under the 1977 Bermuda II agreement, LHR access for US carriers was limited to American and United, with BA and Virgin Atlantic the designed UK carriers on UK US routes," Credit Suisse's analysts said.
However, the analysts noted there were "two sides to the story", explaining, "Accordingly, the risk of restricted access for Delta in particular, but also potentially American (now combined with US Airways) and United (now combined with Continental), should prove unpalatable, in direct contrast to US tariffs on steel and aluminium imports which may help local producers.
"Further, Delta owns 49% of Virgin Atlantic, which it is seeking to develop alongside AF KLM within their Transatlantic JV, and we see a liberalised market as crucial to maximising returns. Globally, the US carriers continue to add intercontinental JVs and (Gulf carrier concerns apart) are focused on leveraging an increasingly liberal global industry," the analysts added.
Nonetheless, Credit Suisse maintained its 'outperform' recommendation and target price of 721p on shares of IAG.
As of 1440 GMT, shares had dropped just 0.29% to 612.20p.