Broker snap: JPMorgan upgrades easyJet and Ryanair

18th Jul 2013 10:48

JPMorgan Cazenove has upgraded its ratings for budget airline rivals easyJet and Ryanair as part of its review into the US and European airline sector.The broker said that the restructuring of the US airline industry has been so profound that so-called 'legacy' and 'discounter' airlines are "increasingly difficult to discern from each other".JPMorgan explains that the US has set a powerful example for the global airline industry: "The Chapter 11 [bankruptcy code] cycle harmonised cost structures, leading to homogenisation between Legacy and Discounter airline margins; the consolidation cycle helped close gratuitous hubs, improve pricing power, and diminish industry infighting; ancillary fees were begrudgingly accepted by passengers and cheered by shareholders; industry managements were overhauled, resulting in the type of aggressive return orientation normally reserved for other sectors; high fuel and industry concentration combined to form a significant deterrent to startups."While many believe that the same shake-up could happen in Europe, JPMorgan's multiyear view of Europe envisions little restructuring actually standing in the way of "voracious growth appetites at higher caliber discounters.With Chapter 11 in Europe, JPMorgan thinks that European legacies won't be able to materially close the profit gap with discounters.easyJet has been upgraded from 'underweight' to 'overweight' while its target price has been raised from 625p to 1,540p.Meanwhile, Ryanair has been lifted from 'underweight' to 'overweight', target raised from €4.75 to €8.50.