Morgan Stanley raises its recommendation for Air France-KLM to overweight from balanced and lowers Lufthansa to underweight from balanced, while naming IAG as a top pick in the sector, Bloomberg News reports.
According to the bank, profit downgrades have been greater for low-cost carriers such as Wizz Air, Jet2 and Easyjet than for traditional airlines. At the same time, share prices have not fallen as much, which analysts say poses a risk of further declines.
IAG is highlighted thanks to improved revenue per available seat kilometer (RASK), cost discipline, strong free cash flow and returns to shareholders.
Morgan Stanley believes that Air France-KLM's earnings revisions are largely complete and that the low valuation limits the downside. The bank also sees support from lower fuel costs in the second half of 2026 and the strongest expected EBIT growth among traditional airlines in 2026-2028.
For Lufthansa, however, the bank believes that the stock is already pricing in flawless execution during the second half of 2026. Further downward adjustments to earnings per share and free cash flow are expected to pressure the valuation.
Source: FinWire-di.se
