Irish airlines downgraded by bank

Aer Lingus and Ryanair have been downgraded from ‘Buy’ to ‘Sell’ in a report from investment bank Goldman Sachs.

The report comes on a day when the price of crude oil hit a new record high of $139.89 a barrel in New York trade, surpassing the previous high of $139.12 dollars set on June 6th.

Goldman Sachs this morning cut its six month price target for Aer Lingus to €1.2 from €2.15 and significantly reduced its earnings estimates for the next three years.

It said Aer Lingus was exposed to three weak economies; Ireland the UK and the US and was also in the midst of aggressive growth adding an extra layer of capital expenditure.

The report also noted the airline’s progress on cutting costs has “been slower than expected” and said its fuel hedging was below average for European airlines making Aer Lingus “very sensitive to changes in the oil price”.

Among the risks facing the company are falling consumer demand, oil prices and Ryanair being allowed to bid for the airline.

Lingus shares closed up almost 4 per cent at €1.56.

Goldman Sachs has also cut its earnings targets for Ryanair noting that its customers are “more geared towards discretionary travel and price stimulation than most”.

Noting that there is a time lag between a fall in consumer spending and travel the bank said Ryanair revenues were likely to remain strong over the summer before weakening in the autumn.

Irish Times