UBS thinks European airlines have another decent year ahead of them, with the bank highlighting several UK-listed names as the sector enters what it believes will be a period of firmer profits and still-modest valuations.
Among the UK stocks, Jet2 PLC (AIM:JET2) and Jet2 PLC (AIM:JET2) sit on UBS's buy list.
Irish carrier Ryanair is picked out as the short-haul pace-setter thanks to its low-cost base and ongoing share buybacks, while easyJet is described as attractively valued, helped by continued momentum in its holidays division.
Jet2 remains a consensus favourite, reflecting its mix of airline and package holiday earnings.
Wizz Air Holdings PLC (AIM:WIZZ), though listed in London but focused on central and eastern Europe, is also rated a 'buy', with UBS arguing that an earnings base is finally forming after a turbulent few years.
The bullishness rests on a mix of supportive factors: cheaper fuel, falling inflation, lower interest rates, and continued appetite for travel. UBS also expects improving long-haul demand and better contributions from maintenance, repair and overhaul work and from airfreight.
Pricing, however, looks patchier. The bank expects yield, the revenue airlines earn per passenger per kilometre, to be broadly flat next year.
Pressures could come from weaker consumers, geopolitical surprises or airlines passing on lower jet fuel prices. Still, capacity discipline is expected in the first half of 2026, with supply growth of about 5% in long haul and 4% in short haul, while employment conditions remain steady and business travel intentions have improved in UBS’s own survey work.
Valuations remain another part of the appeal. UBS notes that airline multiples sit below their five- and ten-year averages.
That said, there are still some worries, particularly at the long-haul end of the market.
IAG, owner of British Airways, remains a UBS 'sell'. The bank is uneasy about the broader UK backdrop in 2026 and flags the risk of changes to the Avios loyalty scheme affecting customer status tiers. Air France-KLM remains 'neutral'.