Key Moments
- J.P. Morgan projects European airline seat capacity to rise about 5% year over year in 2026, led by a 6.3% increase in narrow-body supply.
- The bank expects average unit revenue to fall 0.5% for low-cost carriers in 2026, while flag carrier pricing is forecast to rise 0.5%.
- International Consolidated Airlines Group remains J.P. Morgan’s top pick, with a reiterated “overweight” rating and a €6 target price implying 32% upside.
Shift in Sector View as Short-Haul Capacity Builds
European airlines under J.P. Morgan coverage are expected to encounter growing headwinds into 2026 as additional short-haul capacity and easing fare momentum begin to pressure the outlook, according to a research note dated Monday.
The note highlights oversupply as a key concern for low-cost carriers, while it points to relatively stronger fundamentals among European flag carriers and long-haul operators.
Capacity Growth Outlook for 2026
J.P. Morgan anticipates total European airline seat capacity to expand by about 5% year over year in 2026. Specifically, narrow-body capacity is forecast to climb 6.3%, whereas wide-body capacity is projected to rise 4%. Accordingly, the brokerage attributes these gains to accelerating aircraft deliveries.
Pricing Trends: Pressure on Low-Cost, Support for Long-Haul
The report notes that ticket pricing has started to lose momentum following strong post-pandemic gains, particularly in low-cost markets. Consequently, J.P. Morgan expects average unit revenue for low-cost carriers to decline 0.5% in 2026. By contrast, unit revenue for flag carriers is projected to rise 0.5%, as it is supported by tighter long-haul capacity and stronger premium demand.
Profitability: Margins Recover, But Still Below Pre-Pandemic Peaks
J.P. Morgan’s models point to sector EBIT margin expansion of 60 basis points in 2026, mainly due to lower fuel costs. Nevertheless, analysts estimate that profitability will remain below the nearly 10% average EBIT margin recorded before the pandemic.
Stock-Level Calls: Preference for Flag Carriers and Select Low-Cost Names
Within its coverage, the brokerage expresses a clear preference for International Consolidated Airlines Group, the owner of British Airways and Iberia. Accordingly, J.P. Morgan reiterates its “overweight” stance on the stock and keeps it on the Analyst Focus List. This is because the stock offers what the firm views as the most attractive demand-supply backdrop heading into 2026, in addition to strong free-cash-flow potential. The firm assigns a €6 price target, which indicates 32% potential upside from the Nov. 27 close.
Air France-KLM is raised to “overweight” from “neutral” with a €14 price target, also implying 32% upside. The note points to prospective earnings improvement supported by long-haul demand and reduced structural costs.
Germany’s Lufthansa is lifted to “neutral” from “underweight,” with a target price of €7.5, equating to 8% downside. J.P. Morgan cites improving macro and operational conditions, while still emphasizing ongoing execution risk around restructuring initiatives.
More Cautious Stance on Budget Airlines
Budget carriers receive a more skeptical assessment in the report. For instance, J.P. Morgan lowers its rating on easyJet to “underweight” from “neutral,” with a 400p price target implying 18% downside. Moreover, analysts flag likely pricing pressure from aggressive capacity additions and new route investments, which could increase near-term costs.
Jet2 is downgraded to “neutral” from “overweight” with a 1,450p target, implying 2% upside. The brokerage expects earnings to come under pressure from capex tied to expansion and the launch of its Gatwick base.
Ryanair, however, retains its favorable standing. The carrier keeps its “overweight” rating, with a €33.5 target price indicating 17% upside. J.P. Morgan underlines Ryanair’s unit-cost discipline and robust free-cash-flow generation as key supports. Wizz Air remains rated “Neutral” with a 1,200p target, with the analysts pointing to near-term earnings risks linked to elevated capacity growth.
Ratings and Targets Summary
| Company | Rating Action | Current Rating | Target Price | Implied Upside/Downside |
|---|---|---|---|---|
| International Consolidated Airlines Group | Rating reiterated | Overweight | €6 | 32% upside (from Nov. 27 close) |
| Air France-KLM | Upgraded from Neutral | Overweight | €14 | 32% upside |
| Lufthansa | Upgraded from Underweight | Neutral | €7.5 | 8% downside |
| easyJet | Downgraded from Neutral | Underweight | 400p | 18% downside |
| Jet2 | Downgraded from Overweight | Neutral | 1,450p | 2% upside |
| Ryanair | Rating reiterated | Overweight | €33.5 | 17% upside |
| Wizz Air | Rating maintained | Neutral | 1,200p | Not specified |
Sector-Level Revenue Expectations
J.P. Morgan notes that long-haul capacity remains comparatively tight, which is seen as supportive for pricing. By contrast, the acceleration in short-haul supply – especially in the UK and leisure-focused markets across continental Europe – is expected to put pressure on low-cost carrier profitability in 2026.
Overall, the brokerage forecasts flat unit revenue for the sector, as capacity additions are projected to outstrip demand against what it describes as a backdrop of moderating macroeconomic conditions.
TradingPedia.com is a financial media specialized in providing daily news and education covering Forex, equities and commodities. Our academies for traders cover 
