BA-owner IAG is rated as a ‘Buy’ as short-haul capacity continues its rebound and price rises beckon, according to UBS.
The finance group placed a 220p price target on the company that also owns EU-based airlines Aer Lingus, Iberia and Vueling.
UBS said air travel capacity is forecast to continue its rebound this year, though pre-Covid rates of travel remain out of reach.
The broker is relaxed on the potential for more travel restrictions, anticipating a UK-style soft touch across Europe, with the main headwind being continued fuel inflation.
Research by UBS suggests that short-haul capacity for Q2 2022 will be at 94% of Q2 2019 levels, but that in February capacity was 31.7% lower than at the same time in 2019.
Long haul travel also lags pre-Covid levels, sitting 28% below the Q1 2019 rate in the same quarter this year.
UBS said it was unlikely that capacity would exceed demand as a result of fleet constraints, putting further upward pressure on prices as jet kerosene reaches a five-year high against the US$.
The bullish price signal on IAG reflects pent-up demand in time for travel season, with FHZN, owner of Zurich airport, and Aena also placed on its ‘Buy’ list.