Broker snap: Oil price means lower forecasts for airlines

11th Apr 2011 10:33

While Nomura thinks that elevated oil prices will probably fall over the medium term, the Japanese broker prudently factors in the current levels to its earnings estimates for airlines, resulting in forecast reductions at easyJet and Ryanair.Brent oil is 30% higher than the start of the year and now sits 17% below the peak registered in 2008. The broker incorporates a $120 oil price into its forecasts."Demand trends point to ongoing strength in the premium cabin with robust volumes and a high ability to pass the oil price on to customers," Nomura said.However, it notes that high levels of capacity growth have made it difficult to pass on the fuel price in the cheaper seats in long-haul and load factors are still sliding.Budget airline easyJet sees its target price cut to 470p, from 600p, while a 'buy' is retained. Rival Ryanair also has its 'buy' rating left intact, but its target is lowered from €6 to €5.50.Forecasts at British Airways owner IAG are kept the same as Nomura had already factored in a $115 oil price into estimates previously. The broker sticks with its 'buy'."The market is likely to adjust to higher fuel with the imposition of fuel surcharges and capacity decisions. However, that adjustment lags the movement in the spot oil price and so there is near-term margin pressure when fuel rises sharply," said the broker. ---bc