Air France-KLM, Lufthansa and IAG: European Airline Shares Upgraded

Barclays upgraded European airlines Air France-KLM, Lufthansa and IAG to “equal weight” from “underweight” in a note this week, citing stronger-than-expected second-quarter sales and favourable macroeconomic trends, including falling fuel prices and a weaker U.S. dollar.

The bank raised its price targets for all three carriers. Air France-KLM’s target was lifted to €10.50 from €5.40, Lufthansa’s to €7.20 from €5.20, and IAG’s to 370 pence from 235 pence.

Air France-KLM shares have surged over 52% this year, after a 14% rally on Monday. The stock has gained around 1% on Tuesday. Meanwhile, Lufthansa is up 20% in 2025 after adding 1% in Monday’s session, with IAG having rallied 26% for the year-to-date.

Barclays told investors that transatlantic revenues are softening more slowly than previously forecast, and highlighted resilient demand in the South Atlantic market, which it sees as helping to offset weaker performance on North Atlantic routes, particularly for IAG.

Premium leisure is said to remain a bright spot. The bank explained that Air France-KLM and Lufthansa are both seeing stronger demand for first class seats than for business or premium economy. 

Meanwhile, economy-class demand is weakening, and Barclays flagged a slight drag on business travel due to geopolitical and political factors.

For Lufthansa, the bank expects only a modest decline in unit revenues from its cargo and maintenance businesses, though it noted the airline is less exposed to premium leisure than its peers. 

Within Air France-KLM, the Air France unit is said to be helping to counterbalance weaker results from other parts of the group.

Overall, Barclays said European airlines remain supported by a mix of operational momentum and easing cost pressures.