Aegean Airlines: hard times (downgraded to HOLD)

We have reduced our forecasts for Aegean Airlines, on back of the economic fallout from the Russian war in Ukraine. The high food and energy prices are likely to exacerbate the pressure on consumers. While we expect to see a recovery of demand for air travel in the summer, as Europe appears on track to emerge from the pandemic, the risk of over-capacity seems to be rising. Aegean has, historically, managed to stand its ground against the competition, proving that holiday-makers heading to Greece are often willing to pay more not to fly with the ultra-low-cost carriers (ULCCs). That said, with only 40% of its fuel hedged for 2022E, Aegean is exposed to the rising prices. This is likely to make its fares less competitive, and put margins under pressure. The company’s strong balance sheet (following the EUR 60m capital increase and EUR 120m of state aid), experienced management and competitive unit costs (on a par with easyJet) should all help Aegean navigate what appears to be another difficult year ahead, in our view. While we expect to see a tangible rebound in traffic, with 3Q22E reaching some 85% of 3Q19, we do not expect this to translate into profitability this year. Barring a de-escalation, a drop in oil prices or limited competition in the summer, we do not see many factors that would justify the share price advancing much above the current levels. Thus, we have downgraded our rating to HOLD, and reduced our 12M price target (PT) to EUR 5.0/share.