JP Morgan has revised its outlook on the European airline industry, highlighting significant capacity growth and a mixed outlook for network carriers.
Among the long-haul groups, the investment bank is a fan of International Consolidated Airlines Group SA (LSE:IAG) - reflected by its 'overweight' recommendation - while it is 'underweight' both Air France-KLM and Lufthansa.
Recent comments from low-cost carriers (LCCs) such as Ryanair Holdings PLC (LSE:RYA) suggest a mixed pricing outlook for short-haul leisure travel.
Network carriers had more conservative expectations entering the year, and first-quarter pricing, excluding the impact of strikes, remained resilient.
However, second-quarter pricing might be softer than anticipated due to high capacity growth, variable demand on long-haul routes and cabins, and potential LCC discounting affecting short-haul leisure.
This softer pricing coincides with elevated costs for network carriers, raising concerns about whether peak summer leisure demand will be strong enough to boost third-quarter pricing.
European long-haul capacity growth remains high, surpassing short-haul growth. Transatlantic capacity growth is strong, with the UK and Netherlands facing constraints that could benefit IAG and KLM.
JP Morgan sees IAG as a higher-quality investment with more self-help restructuring and better cash generation in an uncertain market.
In afternoon trading, stock in the owner of British Airways was off 0.7% at 168.55p.