JPM warns on EU airline stocks as short-haul oversupply pressures 2026 outlook

Investing.com -- European airline stocks under J.P. Morgan coverage faces mounting pressure from rising short-haul capacity and slowing pricing momentum heading into 2026, according to a note dated Monday.

The brokerage flags oversupply as a central risk for low-cost carriers while identifying stronger prospects among European flag carriers and long-haul operators. 

J.P. Morgan forecasts total European airline seat supply growth of about 5% year over year in 2026, with narrow-body capacity up 6.3% and wide-body capacity rising 4%, driven by accelerating aircraft deliveries.

The brokerage states that pricing has begun to soften after post-pandemic surges, particularly in low-cost markets, with average unit revenue for LCCs projected to decline 0.5% in 2026, while flag carrier pricing is expected to increase 0.5% due to more constrained long-haul supply and stronger premium demand. 

The analysts model sector EBIT margin expansion of 60 basis points in 2026, supported by falling fuel costs, but still below the near 10% pre-pandemic average.

Among individual stocks, International Consolidated Airlines Group, parent of British Airways and Iberia, is J.P. Morgan’s preferred exposure. 

The brokerage reiterates an “overweight” rating and keeps the airline on the Analyst Focus List, citing what it views as the best demand-supply positioning into 2026 and strong free-cash-flow potential. J.P. Morgan assigns a €6 price target, implying 32% upside from the Nov. 27 market close.

Air France-KLM is upgraded to “overweight” from “neutral” with a €14 price target, also 32% upside, on what the report cites as potential earnings improvement from long-haul demand and lower structural costs. 

German carrier Lufthansa receives an upgrade to “neutral” from “underweight” with a €7.5 target, representing 8% downside, reflecting what analysts call improving economic and operational conditions but continued execution risk surrounding restructuring.

Budget carriers are assessed more critically. J.P. Morgan downgrades easyJet to “underweight” from “neutral” with a 400p target (18% downside), citing expected pricing pressure from aggressive capacity expansion and new route investments pushing up near-term costs. 

Jet2 is cut to “neutral” from “overweight” with a 1,450p target (2% upside), based on expected earnings pressure tied to growth-related capex and the launch of its Gatwick base.

Low-cost leader Ryanair retains an “overweight” rating, with a €33.5 target (17% upside), supported by unit-cost discipline and high free-cash-flow generation. Wizz Air is maintained at Neutral with a 1,200p target after what analysts describe as near-term earnings risk from elevated capacity expansion.

J.P. Morgan adds that while long-haul capacity remains constrained and supportive of pricing, short-haul supply acceleration, particularly in the UK and continental leisure markets, is likely to weigh on low-cost carrier profitability in 2026. 

The brokerage projects flat unit revenue across the sector overall as supply growth outpaces demand against a backdrop of moderating macroeconomic conditions.