European airlines gain after Deutsche Bank upgrades to Buy

By Geoffrey Smith 

Investing.com -- European flag carrier stocks rose on Friday after Deutsche Bank upgraded the three largest groups in the sector, saying their post-pandemic recovery has much further to run. 

By 04:55 ET (08:55 GMT),  Air France-KLM (EPA:AIRF) stock was up 3.4%, Lufthansa (ETR:LHAG) stock was up 2.6% and International Airlines Group (LON:ICAG), the parent company of British Airways and Iberia, was up 1.9%, as Deutsche Bank upgraded all three to 'Buy' from 'Hold', citing a "materially improved" outlook.

Deutsche's new 12-month price target of €2.30 (€1=$1.0884) for Air France-KLM is more than 40% above Thursday's close of €1.63. While expressing caution about the macroeconomic outlook and in particular the potential for strike-related disruption, Deutsche analysts said they expect AF-KLM's operating earnings to be 20% higher than previously forecast.

The three flag carriers are more exposed, proportionally, to business travel and to long-haul routes in and out of China, two segments of the market that have been slower to recover than short-haul tourism since the lifting of pandemic-era restrictions. 

All three fell heavily during the pandemic, when they were forced to rely on extensive government support to stay afloat. However, Lufthansa repaid last year all the aid it received, while Air France-KLM repaid the last €2.5 billion of its aid package two weeks ago. Both are now free to channel cash flow into paying down other debt and into shareholder returns. All three expect further improvements in earnings this year.