DAVY VIEW

Airlines stocks have been on a wild ride since the Ukraine invasion, as has the oil price. Post-earnings season we have adjusted fuel upwards from $775 to $975 per metric tonne for the network airlines. Clearly there are a range of issues – overflight re-routing to Asia, elongated supply chains in cargo, demand/supply in the two main markets this year (Intra-Europe, Atlantic). US markets have taken a sanguine enough view of the conflict compared with Gulf War times, but European airlines are down anywhere from single digits to 35% in the case of Wizz. In fairness, all the major networks have restructured post-COVID. We favour Lufthansa (‘Outperform’) over the others given cargo exposure, optionality on Lufthansa Technik, the declining pension deficit and balance sheet strength.