Investors remain selective on European airline stocks, with IAG retaining its position as the market's favourite despite a slightly more cautious tone across the sector, according to separate reports from Citi and UBS.
Citi said investor positioning turned modestly more negative over the past week, although sentiment remains considerably more positive than a month ago.
The US bank's latest positioning data showed British Airways owner International Consolidated Airlines Group SA (LSE:IAG) remains the market's preferred airline stock and was the only major carrier not to see an increase in short positions over the past week.
Ryanair Holdings PLC (LSE:RYA) recorded the biggest improvement in investor positioning over the past month, although Citi said the stock remained in "two-way debate" territory, suggesting investors are divided on its prospects.
By contrast, Air France-KLM (OTC:AFLYY) moved back into the consensus short category after recording the largest weekly increase in bearish positioning. EasyJet PLC (LSE:EZJ) also remained a consensus short, with positioning deteriorating over the past week, although Citi noted the recently agreed takeover price could improve sentiment. Wizz Air Holdings PLC (AIM:WIZZ) and Lufthansa also remained consensus shorts.
The mixed positioning comes as European airline capacity trends continue to diverge geographically.
According to UBS's latest airline traffic monitor, European capacity in June was down 2% from a year earlier, unchanged from May.
Capacity in both the UK and France was down 2%, while Germany continued to lag the worst, with a 6% decline. Italy and Spain remained the strongest-performing markets, with capacity up 5% and 4% respectively.
UBS also highlighted a weakening trend in the US, where airline capacity fell 3% year-on-year in June, while China's market showed modest improvement as domestic travel recovered.
The contrasting regional trends suggest investors are continuing to favour airlines with greater exposure to southern European leisure markets over those more reliant on weaker northern European demand.
