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Airlines

CONSUMER CYCLICALS

Sector is taking the worst of it on today's sell-off - we have no issue with that (screened rich vs. broader consumer curves) but extent of decompression might be motivation to step down for spread pickup. Air-France is leading widening; 28's well north of peers now but a hard name to like on expected negative FCF. Earnings in 2 weeks - one to watch.

  • easyJet & Ryanair are low single digit wider outperforming €IG while IAG, LHA & AFFP have seen well into double digit widening -i.e. strong decompression in the sector.
  • AFFP 28's (SLBs) are -1pt/+25bps cheaper today (bunds were only +2bps on 5yr then) - larger move than Lufthansa that had a -33% FCF guidance cut but as we flagged yesterday afternoon AFFP is facing similar cost pressures & consensus sees a rough earnings coming up in 2-weeks. Analyst have also flagged that it had the highest exposure to middle-east among network carriers (may have changed since).
  • Sell-off's moved 28s wider of our cheapest screen in the sector; the HY Airport retailer Dufry (now Avolta). We still prefer Dufry in the space, but flagging AFFP here (without a firm view) given +50bp spread pick up vs. lower rated but better outlook IAG.
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