MS sees selective opportunities in European airlines, upgrades Air France KLM, downgrades Lufthansa

Deutsche Lufthansa AG

26/05/2026 08:54

** Morgan Stanley says complacency after sharp earnings cuts has created selective opportunities in European airlines, as markets underprice EPS and free cash flow revisions

** The brokerage says Air France-KLM AIRF.PA offers better upside than Lufthansa LHAG.DE because its earnings cuts are largely priced in, while Lufthansa's valuation still assumes strong second-half execution and fuel benefits

** The broker raises French-Dutch airline Air France-KLM to "overweight" from "equal-weight" and lifts its TP by 22% to 11.50 euros, saying its earnings reset is largely complete

** MS remains cautious on jet fuel, saying "structural tightness is likely to persist" due to supply shortfalls, which could keep prices higher for longer

** The brokerage downgrades German rival Lufthansa to "underweight" from "equal-weight" and cuts its TP by 15% to 6.20 euros, citing weak fuel hedging, execution risks and limited guidance headroom

** MS keeps IAG ICAG.L as its top sector pick with an "overweight" rating, citing improving Revenue per Available Seat Kilometer (RASK), disciplined costs, resilient free cash flow and strong shareholder returns

 (Reporting by Lucie Barbier)

 ((Email: lucie.barbier@thomsonreuters.com))