HSBC grounds EasyJet and IAG

(ShareCast News) - HSBC downgraded EasyJet to 'reduce' from 'hold' and cut the price target to 1,600p from 1,800p.The bank said EasyJet is an excellent business and has traded very well this summer. However, it expects increasing unit revenue pressure from accelerating capacity growth into winter 2015.HSBC said it has reverted to its view that the European short-haul market looks inherently unstable, with five companies pursuing the number three position in the industry."We also see EasyJet's market position under threat from Ryanair's repositioning up-market. Ryanair is rebranding its business, changing the booking and travel experience for the better, entering major airports and launching business traveller friendly routes and schedules. These moves bring the two major carriers into tougher competition."The bank also cut its stance on International Consolidated Airlines Group, to 'hold' from 'buy' and trimmed the target price to 6,250p from 7,000p."We think that investor expectations on IAG are very high," it said."We think that the company will deliver strong profit growth in full-year 2016 and is now starting shareholder cash returns. However, with such high expectations, we believe it will likely struggle to exceed market expectations.HSBC said third-quarter results delivered strong momentum, the strategic position of the company is very good and management well respected.It expects IAG to reassure the market on its strategy at this Friday's capital markets day, but said most commentators are already of the view that this is a strong business.At 1006 GMT, EasyJet shares were down 2.5% at 1,706p and IAG shares were 0.8% higher at 586.92p.