After a brief spell of optimism about recovery at the start of July, the broker expects the emphasis this time across the sector will again be cashflow and survival.
There has been an uptick in capacity across short-haul routes in Europe with relatively strong pent-up demand in July and August, but the broker still expects sector revenues to be 68% lower year-on-year on average.
Fewer flights will hit cash generation while outflows will be amplified by refunds and fuel overhedging. More capex deferrals and restructuring are likely to accompany the numbers, adds Barclays, which reduced its price target for IAG to 120p from 180p, while easyJet’s target is now 510p from 600p.
The broker does not see any short-term liquidity risks but further fundraises could be on the agenda in the long-term especially as a meaningful restart on long-haul routes is unlikely soon while European leisure demand has largely dried up.
Ryanair’s price target is raised to EUR14.5 and Wizz Air to GBP39.60.
Peel Hunt, meanwhile, has initiated coverage on easyJet with a price target of 500p, saying the airline faces a battle to get its costs down to match its rivals but COVID-19 gives it an opportunity.
“Ex-fuel unit costs have risen persistently over time leaving easyJet uncompetitive and vulnerable to a loss of market share, particularly as airports are no longer slot constrained.
“Covid-19 presents an opportunity to reverse this trend such that the group can become competitive again.
“The challenges are considerable, not least the need to achieve and retain labour agreements and to up-gauge the fleet which will likely result in cash outflows for several years.”