European low-cost airlines are about to enter their toughest season yet. As for all airlines, high fuel prices are burning away cash. Revenues in the low-cost sector are under fiercer attack than usual owing to extreme overcapacity. The pressure is not just coming from a plethora of airlines German train fares have been slashed to provide alternatives to cheap flights.

EasyJet shares are looking beyond the cold spell and are anticipating a thaw. The catalyst was last week's purchase by Icelandair Investments of 8.4 per cent of EasyJet's shares. An increase in this stake is on the cards. The question is whether Icelandair is truthful in stating that it is buying shares because it sees longer-term value in EasyJet, or whether this is a precursor to a full-blown bid. For now, Icelandair's intent should be taken at face value. There are constraints on taking control, such as the 41 per cent stake in EasyJet held by the Haji-Ioannou family and a 40 per cent restriction on foreign ownership in EasyJet's articles of association.

Without a bid, EasyJet's shares are unlikely to climb much beyond the £1.50 level. To do so, a control premium would need to start being priced in. The recent sharp rise in EasyJet's shares fully reflects the likelihood that it will be one of the survivors of the coming winter always a seasonally tougher time of year. But until either oil prices fall or industry capacity is reduced it is too early to call spring.

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