With the market meltdown back to business on Monday, several analysts have been busy telling clients just how they feel about the airline industry these days. The conclusion? Not good.
UBS Analyst Fadi Chamoun said:
The outlook for the Canadian airline sector has deteriorated in the past few months as air travel demand continues to weaken due to the effect of slowing economic growth and higher costs of air travel and we expect corporate travel demand to decelerate further in coming months.
He lowered his earnings estimates for both WestJet Airlines Ltd. (OTC:WJAVF) and Air Canada (AIDIF.PK), saying the overall effect of lower oil prices and moderating revenue per available seat mile will be negative to both their earnings.
Mr. Chamoun cut his WestJet target from C$19 to C$15.50, but maintained his "buy" rating, citing several factors including the company's strong competitive position and the fact that shares currently trade "significantly below its medium-term earnings power."
The analyst also lowered his target on Air Canada from C$6.50 to C$5.50, reiterating his "neutral" rating.
We see downside risk based on fundamentals but remain cognizant that ACE [Aviation Holdings (OTC:ACEAF)] may offer to repurchase the 25% of Air Canada that it does not own as it unwinds its operations over the next two to three months.
Cameron Doerkson at Versant Partners maintained his "sell" rating on Air Canada shares and lowered his target from C$5.50 to C$4. He told clients that he does not see any fundamental reason to buy the stock.
He told clients:
We cannot discount the possibility that ACE will repurchase the public float of Air Canada. However, this move has been speculated on for many quarters with no action. Until something is announced, we continue to value the stock based on the fundamentals.
Both WestJet and Air Canada were down big Monday, falling 8% and 13%, respectively.