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Ryanair and EasyJet top low cost picks at Morgan Stanley
Following a series of positive short-haul industry developments, analysts at Morgan Stanley turned their eyes to Ryanair and easyJet on Friday and highlighted several opportunistic expansion and pricing tailwinds that could appear at both firm's through 2020.
Supportive industry trends, such as opportunities for growth in certain countries as a result of a recent spate of competitors going under, led Morgan Stanley to reiterate its 'buy' ratings and target price of £20 on easyJet and 20 on Ryanair.
MS noted that the European short haul market was considerably different to that of the US, leading it to believe that cost pressures from fuel and FX, as well as risks from macro developements, regulatory or political factors that can affect capacity and supplier costs at its larger scale rivals would be far less likely to hurt the lower cost EU-focused carriers.
The broker also highlighted how short haul European capacity trends had seen "marked changes" over the past six months, a trend that looked set to continue throughout the summer, and that While some capacity had returned to fill gaps left by the liquidation of Monarch and Air Berlin, with some disciplined introduction of new capacity into the market and sustained strong demand, the analysts concluded that the pricing environment would continue to be favourable.
Discussing the likelihood of oil prices rising to as much as $90 per barrel, the analysts said, "Increased demand could drive up prices for crude oil as well as the spread on jet fuel, creating a compounding effect."
"During recent results we had a few airlines acknowledge that with a lower oil price the industry still saw three major European airlines go into administration last year allowing for market share gains at the larger players - now with an increasing oil price capacity consolidation which we believe is good for our main picks Ryanair and easyJet," MS added.