Buy these airlines on hopes for 2023, investors told

Results have been better than expected and shares in these two carriers could rise significantly higher, believes this City analyst. 

“Buy” recommendations for easyJet (LSE:EZJ) and British Airways owner International Consolidated Airlines (LSE:IAG) have been kept in place after a leading City analyst updated his forecasts in the wake of recent trading updates.

The verdict of UBS’s Jarrod Castle continues to see a big upside for low-cost carrier easyJet based on his unchanged price target of 805p. The shares were below 400p today, having touched a low of 338p amid this summer’s wave of flight cancellations.

Castle cut his target on IAG by 10p to 170p in order to reflect increased recessionary risk, but this figure still offers a big upside on the level of below 120p seen this afternoon.

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The targets at the Swiss bank reflect July’s stronger-than-expected results and industry hopes of an improved outlook in 2023, which has been enhanced by a recent fall in oil price.

Castle said: “The tone from management in our view was reassuring and European airlines continue to ramp up capacity through the quarters.”

Despite the bank’s optimism, false dawns since the discovery of a Covid vaccine in November 2020 mean long-suffering investors are likely to remain wary about the recovery outlook.

Setbacks have included Omicron, a spike in oil prices caused by the Ukraine invasion, ongoing airport disruption and the darkening economic outlook.

Retail investors remain keen, however, after easyjet and IAG featured among the top ten most bought investments on the interactive investor platform during July.

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These new backers will have been pleased to see IAG shares trading higher than mid-July’s low for the year of 103p, particularly given that British Airways has suspended ticket sales for short-haul flights from Heathrow airport until next week.

The move by the airline aims to protect existing bookings and avoid cancellations and is in line with the recently imposed capacity cap at Heathrow.

Weekly analysis by Bank of America suggests an improving demand trend for European airline bookings, driven by momentum for continental flights.

The investment bank’s Sky Tracker research shows intra-Europe sales were just 1% below 2019 levels, compared with 15% lower the previous week.  International flight sales were 12% lower than the equivalent pre-pandemic period, unchanged from a week earlier.

IAG recently swung to a profit in the second quarter of 2022, the first time it has posted a surplus since the pandemic as it benefited from stronger demand for premium leisure travel.

The problems at Heathrow meant British Airways flew 69% of its 2019 capacity in the second quarter, but this is expected to improve to 75% in the third quarter.

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At easyJet, its quarterly loss of £114 million was an improvement from 2021’s third quarter deficit of £318 million and surpassed City forecasts for a figure near to £132 million.

For the current quarter it expects capacity to be 90% of the equivalent period in 2019, in line with its lowered estimate following summer airport disruption and staff shortages.

UBS’s Castle now sees easyjet reporting a full-year loss of £138 million rather than the £26 million profit previously forecast, but his estimate for 2023 improves to a £369 million surplus. He added: “We see disruption risk as the greatest risk to easyJet's current year results.”

At Wizz Air (LSE:WIZZ), UBS has a neutral recommendation but a higher price target of 2,925p after the bank lowered its loss estimate for 2023 and hiked its profit forecast for 2024. The shares are currently at 2,259p.