Broker snap: Forecasts cut but IAG still a 'buy'

14th Feb 2011 11:03

Fuel price increases, capacity issues and the winter impact on pricing are all concerns for British Airways owner International Airlines Group (IAG), but the shares are still worth buying at this price, UBS says. "We think investor concerns that fuel increases will not be able to be fully passed onto consumers in the near term is valid. In addition to the normal lag in passing on fuel increases to consumers, capacity on certain routes is running high which diminishes pricing power for airlines. Given these issues we downgrade estimates," says UBS.The broker cuts 2011 yield forecasts from 9% to 7% given excess capacity on certain routes and "what appears to be winter impact on pricing." However, the 2012 yield estimate is raised from 2% to 3% as the lag in pricing is pushed into the following year. UBS notes that the group has underperformed the FTSEALL by 15% since listing, but says that, should capacity restraint over the summer months persist, pricing will improve.A 'buy' is retained, but the target price is lowered from 360p to 290p.