(News Bulletin 247) – The action of the air transport group reacted belatedly this Thursday to the announcement of its entry into the capital of the Swedish company SAS which suggests a consolidation of the market. Bernstein’s recommendation increase on Wednesday also plays a role.

Sometimes the market context does not lend itself to announcing very good news. And as a result, stocks react “delayed” to these announcements, one or even several sessions later. This was, for example, the case for Worldline when it published its half-year results. The stock gained 5% not on the day of the announcement of its accounts but the following day.

This is also what is happening for Air France-KLM. The air transport group rose 4.2% this Thursday around 12 p.m., by far the strongest increase in the SBF 120.

However, no market news occurred this Thursday. We actually have to go back to Tuesday evening and Wednesday morning to understand what catalysts are behind this progression.

“The market reacted with a delay of one session to the announcement of the entry into the capital of SAS by Air France-KLM. Investors appreciate this announcement because it marks a new wave of consolidation in Europe. Which is positive for all players because this augurs a tightening of the market, and will thus support the pricing discipline of air transport groups (and will therefore push prices upwards)”, explains Yan Derocles, analyst at Oddo BHF.

Moreover, Lufthansa takes 2.3% in Frankfurt and IAG, parent company of British Airways and Lufthansa, advances 1.6% in London as does easyJet which takes 3.4%. In Dublin, Ryanair advances by 1.8%.

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A positive consolidation for the sector

Air France-KLM announced Tuesday evening that it would take over, alongside financial partners (the Castlelake and Lind Invest funds), the Swedish company SAS, which had placed itself in July 2022 under the protection of American bankruptcy law.

Air France-KLM thus intends to take a stake of up to 19.9% ​​in the capital of SAS with an injection (for itself alone) of 114.5 million dollars, including 109.5 million dollars in shares and the remainder in the form of convertible bonds. Consequently, the Franco-Dutch group intends to strengthen its collaboration with the Scandinavian group via commercial cooperation between its companies and SAS.

This decision shows the extent to which consolidation is underway in Europe in the sector. In addition to SAS, the Italian ITA Airways (formerly Alitalia) is in the process of being taken over by Lufthansa. The same goes for the Spanish Air Europa which will be bought by IAG, the parent company of British Airways and Iberia. Last week, the Portuguese state kicked off the privatization of TAP, a matter which is of interest to Air France-KLM given the complementarity of the Portuguese company’s network in South America with those of its companies.

Bernstein moves to “outperform”

Furthermore, Air France-KLM shares benefit from another boost. “The stock is also supported, again with a delay of one session, by an increase in recommendation from Bernstein,” observes Yan Derocles of Oddo BHF.

The bank’s analysts, led by Alex Irving, revised their opinion on the stock on Wednesday morning from “market performance” to “outperform”, which amounts to going from neutral to buy on the stock, with a price target of 15 euros.

We wrote a previous article that summarizes their arguments for action. To summarize, they praise the efforts made by Ben Smith (the best general manager of airlines in Europe, according to them) to restore the profitability of Air France, judge that the rationalization of the Air France-KLM fleet will improve the efficiency of the group and note that with an ultra-diversified network and the status of France as the number one tourist destination, the Franco-Dutch company is well positioned to take advantage of the evolution of demand, in particular the good dynamics of tourism.

Last element which can have a positive influence: the decline in oil prices, fuel remaining the main item of expenditure for airlines, even if many of them have hedges. The barrel of Brent from the North Sea has lost almost 9% over the last five sessions.