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Investing.com -- JPMorgan remains selective on European flag carriers, reiterating its preference for International Airlines Group (IAG) over rivals Lufthansa and Air France-KLM.
The bank said it has grown more cautious on Europe’s short-haul market given the risk of overcapacity, but sees IAG best positioned through the remainder of the year.
“Overall, IAG has the lowest risk of overcapacity on its routes,” analyst Harry Gowers wrote, while flagging Lufthansa’s exposure to weaker transatlantic demand from its core markets.
Long-haul capacity across Europe is set to accelerate into the winter season despite a muted domestic economic backdrop, though Gowers noted this could be partially cushioned by stronger inbound growth.
On transatlantic travel, capacity remains tight, particularly in the UK-U.S. market which is IAG’s largest profit pool.
On the flip side, “passenger volumes from Lufthansa’s core markets into the U.S. remain very weak,” the analyst said.
Gowers expects pricing trends for the carriers to decelerate in the second half, driven by softer sequential transatlantic fares into the third quarter. Against this backdrop, the bank reiterated an Overweight rating on IAG, keeping it on Positive Catalyst Watch into Q3.
Lufthansa was kept at Underweight with a Negative Catalyst Watch, while Air France-KLM stays at Neutral.
He remains “agnostic on long-haul versus short-haul given accelerating capacity trends in both,” but emphasized IAG as their overall top pick, citing better end-market dynamics and the potential to return strong free cash flow to shareholders.
Lufthansa announced on Monday that it plans to reduce its workforce by 4,000 by 2030, driven by the adoption of artificial intelligence, digitalization, and increased consolidation across its airlines.
The company said that most reductions will be in Germany and focused on administrative functions rather than operational roles.
The carrier said “profound changes brought about by digitalization and artificial intelligence” would boost efficiency across its businesses.