Investing.com -- Barclays (LON:BARC) has initiated coverage on Aegean Airlines (AT:AGNr) with an "overweight" rating and a price target of €12.50, citing the company’s unique position in the European airline industry and its consistent track record of profitability.
Analysts at Barclays said that Aegean’s business model sets it apart from many of its peers, as it operates a full-service, short-haul network while maintaining EBIT margins second only to Ryanair (NASDAQ:RYAAY) in Europe.
Aegean Airlines has carved out a dominant position in the Greek aviation market, controlling 61% of the domestic market and 48% of the European market to Athens.
Unlike legacy state-owned flag carriers, the company doesn't have to worry about restrictive labor practices or union contracts.
Aegean’s origins as a private challenger to the now-defunct Olympic Airlines allowed it to build a modern, cost-efficient operation.
The acquisition of Olympic’s brand and domestic operations in 2013 further bolstered its market position, particularly in regional operations, where it continues to use the Olympic brand.
Barclays highlighted Aegean’s ability to consistently deliver strong financial results.
In the five years leading up to the pandemic, the airline achieved an average EBIT margin of 8.4%.
Post-pandemic recovery has been even stronger, with average margins of 12.8% in 2022 and 2023, significantly outpacing the 6.6% average for network peers and 4.8% for low-cost carriers.
This performance underscores the effectiveness of Aegean’s strategy, which focuses on short-haul services to, from, and within Greece, supported by a simple and efficient fleet structure comprising Airbus A320 family aircraft and smaller turboprops for island operations.
The airline’s success has also been driven by its ability to leverage its position as an inbound operator to Greece, a popular tourist destination.
Barclays analysts pointed out that while Aegean’s cost base is rooted in Greece, it captures higher yields by selling a majority of its tickets in Western Europe.
The airline has further benefited from the robust Greek economy and strong demand for travel to Greece, including a growing trend in off-peak and shoulder-season travel.
Despite its impressive performance, Aegean is not without challenges. Like many airlines worldwide, it has been affected by issues with Pratt & Whitney’s GTF engines, which power its A320 NEO family aircraft.
Nine of Aegean’s 31 GTF-powered NEOs are currently grounded, and the airline has an additional 18 on order.
Barclays said that Aegean has managed this issue better than most, redeploying capacity from charter services to scheduled flights and relying on wet leases to maintain operations.
However, the analysts acknowledged that developments in the GTF program could present further risks or opportunities for the airline.
Another potential risk lies in Aegean’s expansion plans. The airline intends to equip 12 A321NEO aircraft with lie-flat business class seats to target medium-haul routes to the Middle East, South Asia, and East Africa starting in 2026.
While these markets hold promise, Barclays cautioned that the move introduces operational complexity and pits Aegean against well-established carriers in the region.
Additionally, competition from local rival Sky Express, which operates a similar fleet and network, could pose challenges, although Sky Express’ lack of aircraft orders and reliance on expensive leases may limit its ability to compete effectively.
Barclays also flagged Aegean’s growing investments in flight training and maintenance, repair, and overhaul services, which now serve third-party customers.
These initiatives, alongside cautious growth plans, underpin the airline’s focus on maintaining profitability and operational efficiency.
Monthly traffic data from Greek airports indicates sustained strong demand for travel to Greece, supporting Aegean’s positive outlook.