UBS lowers European airline stock target prices due to soaring fuel prices

Investing.com - UBS has lowered the target prices for European airline stocks, pointing out the negative impact of soaring aviation fuel costs and ongoing conflicts in the Middle East, while maintaining the ratings for most airlines.

Analyst Jarrod Castle stated that he expects “ticket prices and unit costs to face significant upward pressure, while capacity growth and profit growth will face downward pressure.”

“Currently, airlines have not begun to significantly cut capacity, but if the current situation continues, we will see a substantial reduction in capacity in order to pass on over 100% of the increase in jet fuel prices to consumers over time,” he added.

Meanwhile, European airlines have fuel hedging levels of 55% to 80% over the next 12 months, which buys time to pass on higher costs to consumers.

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Air France-KLM has been hit the hardest in terms of expected revisions. UBS has lowered the target price for the stock from €13.95 to €10 while maintaining a neutral rating. The bank also cut the airline’s 2026 earnings before interest and taxes (EBIT) expectations by 34% and net profit expectations by 54%, well below market consensus.

Among full-service airlines, Lufthansa Group performed the best, with UBS only slightly lowering its target price from €9.50 to €9.40 and reiterating a buy rating, citing that despite rising fuel costs, passenger traffic will continue to recover in 2026.

The target price for British Airways’ parent company International Airlines Group (IAG) was slightly lowered from 370 pence to 355 pence, with the bank maintaining a sell rating on the stock.

In the low-cost airline sector, Ryanair showed the most resilience, thanks to its strongest hedge positions. UBS slightly reduced its target price from €33.50 to €33.15 and maintained a buy rating.

Meanwhile, EasyJet is expected to face a double-digit earnings per share (EPS) downgrade, with its target price cut from £8 to £7, but UBS still maintains a buy rating on the stock.

Wizz Air has suffered the most severe earnings expectation revisions among all covered airlines, reflecting its lowest fuel hedging ratio and significant exposure in the Middle East. The bank cut its 2026 EBIT expectations by 126% and lowered the target price from £16.30 to £14.30.

Despite this, UBS maintains a buy rating on the Hungary-based airline. “We believe Wizz Air may continue to achieve passenger traffic growth in the 2026 calendar year, and the stock has selectivity regarding the Middle East, Ukraine, and operational recovery,” Castle wrote.

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