Panmure Liberum has advised investors to seek buying opportunities in quality airlines with financial strength, sound strategies and superior profit margins.
It named International Consolidated Airlines Group SA (LSE:IAG) as its top pick, followed by Ryanair Holdings PLC (LSE:RYA) and Jet2 PLC (AIM:JET2).
The broker retained its 'sell' recommendation on Wizz Air Holdings PLC (AIM:WIZZ).
The recommendations come as Panmure Liberum warned that the airline industry has yet to fully adjust capacity in response to elevated jet fuel prices, six months into the latest Middle Eastern crisis.
Analyst Gerald Khoo said a clear end to the conflict seems unlikely, and higher fuel prices may persist.
Only IAG and Ryanair have announced modest cuts to planned capacity for the coming winter season, a step Panmure Liberum described as somewhat ironic given both are among the financially strongest airline groups with the highest margins.
The broker said weaker carriers are likely to be forced to follow suit, one way or another.
Panmure kept its 'buy' rating on IAG unchanged, with a target price of 620p.
The broker said IAG's financial performance remains dramatically better than other major European network carriers, and on par with Ryanair, despite trading at a significant valuation discount.
Panmure trimmed its target price for Ryanair to €27 from €27.50, citing a reduction in earnings estimates following updated fuel price assumptions.
The broker maintained its 'buy' rating on Ryanair, citing the carrier's market leadership in European short-haul travel, the lowest unit costs in the industry, and a strong balance sheet.
Jet2's target price of 1700p and 'buy' rating remained unchanged, with the broker citing the group's leading position in the UK package holiday market.
Panmure reduced its target price for Wizz Air to 600p from 700p, maintaining its 'sell' recommendation.
The broker cited Wizz Air's failure to raise equity to reset its balance sheet during the pandemic, its push into Middle East operations, and disruption from aircraft groundings linked to engine problems.
Panmure said it remains sceptical of Wizz Air due to rapid capacity growth, weak earnings quality, and an absence of underlying profitability or cash generation.
