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Airlines hit pause on rally

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Airline curves are flat today while €IG is skewed tighter - any underperformance seems news agnostic. Airlines are coming off strong YTD performance (unsurprising on a spread rally) - budget airlines equities & IAG only ones sharing in that in equities. Still elevated (vs. early 2023 levels) Euro jet-fuel prices might be weighting on. the long-haul names. Recent news in the sector;

  • Lufthansa (Baa3, BBB-, BBB-) {LHA GY Equity}; strike cost increased from €100m in Jan-Feb to now €250m YTD - still an insignificant amount.
  • IAG (Ba2 Pos, BBB-) {IAG LN Equity}; RBC analyst upgrading it to outperform seems valuation driven but also sees north Atlantic capacity "being more of a tailwind rather than headwind". Notes has 2nd highest margins (behind Ryanair). IAG's continued having upgrades to FY24 earnings this year - something not shared by close comp LHAGR - most of this is priced/trades tight in anticipation of an uplift into IG.
  • Air France-KLM (NR, BB+, BBB-); Dutch court ruling its advertisements were misleading re. environmental benefits - ruling didn't use the word greenwashing but initial claim against it did, no fines and nothing on reported emissions leaves little impact on Sus lines and/or ESG mandates. AFFP compression has hit a pause in recent sessions.
  • Ryanair (NR, BBB+, BBB+) {RYA ID Equity} & EasyJet (Baa2,BBB) {EZJ LN Equity} CEO's in media speaking on supply issues from Boeing and RTX limiting capacity heading into summer - nothing new here re. capacity constraints. Ryanair does have strong capacity growth baked in this year - uncertain if any impact just on those remarks (may support pricing & load factors in market).
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Airline curves are flat today while €IG is skewed tighter - any underperformance seems news agnostic. Airlines are coming off strong YTD performance (unsurprising on a spread rally) - budget airlines equities & IAG only ones sharing in that in equities. Still elevated (vs. early 2023 levels) Euro jet-fuel prices might be weighting on. the long-haul names. Recent news in the sector;

  • Lufthansa (Baa3, BBB-, BBB-) {LHA GY Equity}; strike cost increased from €100m in Jan-Feb to now €250m YTD - still an insignificant amount.
  • IAG (Ba2 Pos, BBB-) {IAG LN Equity}; RBC analyst upgrading it to outperform seems valuation driven but also sees north Atlantic capacity "being more of a tailwind rather than headwind". Notes has 2nd highest margins (behind Ryanair). IAG's continued having upgrades to FY24 earnings this year - something not shared by close comp LHAGR - most of this is priced/trades tight in anticipation of an uplift into IG.
  • Air France-KLM (NR, BB+, BBB-); Dutch court ruling its advertisements were misleading re. environmental benefits - ruling didn't use the word greenwashing but initial claim against it did, no fines and nothing on reported emissions leaves little impact on Sus lines and/or ESG mandates. AFFP compression has hit a pause in recent sessions.
  • Ryanair (NR, BBB+, BBB+) {RYA ID Equity} & EasyJet (Baa2,BBB) {EZJ LN Equity} CEO's in media speaking on supply issues from Boeing and RTX limiting capacity heading into summer - nothing new here re. capacity constraints. Ryanair does have strong capacity growth baked in this year - uncertain if any impact just on those remarks (may support pricing & load factors in market).