Investors in airline stocks should ignore Lufthansa's profit warning in assessing the potential for the sector, according to Liberum, with geopolitical risk remaining the key concern.
Growing tensions in the Middle East forced several carriers, including easyJet PLC, to cancel flights to Israel recently, the response from the market was measured rather knee-jerk.
"The muted share price reactions to the Iranian missile and drone attack on Israel suggests the market is becoming accustomed to a more volatile world," Liberum said in a note to brokers.
"We expect a temporary drag on bookings, but there remains a risk of a wider regional conflagration which has a more material and persistent impact on air travel demand remains the key concern."
It says 'buy' easyJet, Ryanair, BA owner International Consolidated Airlines Group SA (LSE:IAG), Ryanair Holdings PLC (LSE:RYA), Jet2 PLC (AIM:JET2), and 'sell' Wizz Air Holdings PLC (AIM:WIZZ).