(BFM Bourse) – The Franco-Dutch air transport group is moving up very sharply this Friday, driven by increases in recommendations from Davy Research and UBS. Since the beginning of the year, the action has recovered more than 20%. A movement that can also be observed in other companies in the sector.
The sky is gradually clearing for Air France-KLM. The Franco-Dutch air transport group has had a superb start to the year on the stock market, particularly this Friday. The company headed by Ben Smith sees its action increase by more than 6.5% around 11 a.m., to 1.511 euros, in a market slightly in the green, the SBF 120 gaining 0.7% at the same time.
Several research departments have expressed their opinion on the file. Ireland’s Davy Research raised its opinion of “underperforming” to “neutral” on the stock. The Swiss bank UBS has gone into buying (against “neutral” previously) with a target price of 2 euros, seeing several buoyant winds for the company, in particular a recovery in traffic for business trips, a potential lower fuel prices and cost control for the company.
“We believe the stock offers an attractive entry point after a 37% drop in 2022,” UBS said.
American Airlines in support
Over the whole of 2023, Air France-KLM is experiencing a notable surge with a jump of 22.7%. The sector as a whole is actually proving to be very well oriented. The German Lufthansa took over 12.8% over the period and the British IAG, parent company of Iberia and British Airways, gained 26%. Ryanair took more than 20%.
Favorable signals and encouraging news are multiplying for the sector. “American Airlines published good results yesterday (Thursday, editor’s note), beating the consensus with strong unit revenues. This shows that American demand is strong, which bodes well for Air France-KLM for which transatlantic flights are very important and profitable,” said Alex Irving, an analyst at Bernstein.
“Airlines seem to have more room to raise their fares, especially since this summer, which will also boost their financial results and profitability,” said Yi Zhong, an analyst at the independent research firm AlphaValue.
The appetite for risk towards depreciated values, which is observed on all the equity markets, has also fully benefited the airlines. “The market has certainly been more willing to buy airline stocks since the start of the year,” said Alex Irving.
China and its promises
“China’s reopening has been very helpful for airline stocks,” he continues. China has, in fact, removed restrictions on the entry of the country for travelers on January 8, thus ending three years of zero-Covid policy.
This leads airlines to increase their capacity, which is currently very limited. Air France operates two weekly flights to Shanghai and one flight to Beijing. The group has just resumed three weekly flights to Hong Kong and will add a third to Shanghai in February. It is also studying an acceleration of its capacities towards China for next summer.
For UBS, a rapid resumption of activity towards Asia could lead the Franco-Dutch transport company to return to its pre-pandemic traffic level, currently forecast for 2025 by the Swiss establishment.
“The reopening of China is favorable for companies operating long-haul flights, including Air France-KLM. However, the resumption of traffic to China should be very gradual,” warns Yi Zhong.
“Companies could be cautious. Firstly because of potential health restrictions on the entry of travelers from China into Europe. Secondly because companies cannot fly over Russian airspace to go to China, which extends the duration of the flight but also the consumption of fuel which has become more expensive with the rise in oil, despite the coverage of fuel prices”, develops the analyst.
Last point that could carry the Air France-KLM action: its bond issue linked to sustainable development, the result of which was announced on Monday. Worth one billion euros, this issue was appreciated by investors, with an oversubscribed order book, demand representing 2.6 times the amount issued. This sent an important signal of confidence.
Julien Marion – ©2023 BFM Bourse
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