Western Europe Airlines: Value Gap Widening - Lufthansa to Sell, IAG Remains Our Top Pick

Research evidence excerpt

Western Europe Airlines: Value Gap Widening - Lufthansa to Sell, IAG Remains Our Top Pick

Action |

08 Jul 2026 00:00:00 ET │ 20 pages

Western Europe Airlines

Value Gap Widening - Lufthansa to Sell, IAG Remains Our Top Pick

CITI'S TAKE

Conor Dwyer AC

Lufthansa and IAG’s shares have moved in tandem over the last year, but +44-20-7986-2824

underlying fundamentals are diverging. IAG trades at a lower multiple for a conor.dwyer@citi.com

business that is more profitable, generates more cash, and carries less debt.

In contrast, we think Lufthansa’s current valuation requires a belief in the

sustainability of temporary tailwinds, an acceptance of lower margins, and

an end to the ongoing risk of further costly strike action. We continue to

prefer exposure to the higher-margin operator, at a substantial discount.

We retain our Buy rating on IAG (27% ETR) but move Lufthansa to a Sell as

our new (increased) €8.70 target price implies -12% ETR.

IAG remains our favoured pick in EU airlines, with shares embedding significant

scepticism in margin sustainability — We reiterate our Buy on IAG, which continues

to stand out for its attractive valuation, superior and resilient margins, and robust

balance sheet. On our estimates IAG trades at roughly half the EV/EBIT multiple of

legacy peers, while generating more than double the operating margin, which we

believe offers a compelling investment case. IAG’s lower leverage and FCF yield also

position it favorably for sustainable and compelling cash returns to shareholders.

Lufthansa valuation appears less compelling following the recent rally, with

outstanding uncertainties relating to staff and recent demand benefits — We

downgrade Lufthansa to Sell. Our concerns center on its premium valuation to IAG;