Citi continues to favor International Consolidated Airlines Group (IAG) among Western Europe’s carriers, maintaining a Buy recommendation and lifting its target price to 610p from 600p. The bank’s analysis centers on a divergence between market moves and fundamental performance across legacy airlines, with IAG highlighted as a comparatively stronger operator.
Analyst Conor Dwyer at Citi noted that IAG - the owner of British Airways and Iberia - has traded in line with Lufthansa over the past year despite differences in underlying metrics. According to Dwyer, IAG currently trades at roughly half the EV/EBIT multiple of legacy peers while delivering more than double the operating margin, and its lower leverage and free cash flow yield support the case for ongoing cash returns to shareholders.
On the earnings front, Citi increased its 2026 EBIT projection for IAG by 5% to 4.6 billion, which the bank says implies around a 13% operating margin. The firm also made modest upward revisions of 2-3% to its 2027-2029 estimates, reflecting expectations that lower fuel costs will be partly offset by pricing dynamics.
Citi set out a range of valuation scenarios for IAG. In the banks bull case, current margins near 15.5% are maintained through the cycle, producing a fair value of 7.20. Conversely, a downside scenario that assumes margins revert toward a legacy-airline average of 6.5% yields a valuation of 2.10.
By contrast, Citi changed its stance on Lufthansa, downgrading the carrier to Sell from Neutral and adjusting its target price to 8.70 from 8.20. Dwyer characterized Lufthansas valuation as "appears less compelling following the recent rally" that has left the stock up more than 20% year-to-date, even as consensus earnings expectations have drifted lower.
The analyst also pointed to company-specific and market factors that weigh on Lufthansas outlook. An unresolved pension dispute with the pilots union Vereinigung Cockpit remains an active risk; strikes in the second quarter cost the group about 150 million across six strike days. Citi additionally expects any demand benefits tied to diverted Middle East traffic to fade as regional capacity is restored.
On forecasts, Dwyer said he is "-5% below consensus in FY26 and -4% for FY27-29" for Lufthansa, and assumes the carriers margins will settle near 6% over the medium term. That level sits well below managements 8-10% margin target presented at its 2025 capital markets day. "While achieving the companys 8-10% margin target for the medium term would offer upside for the shares, we see execution challenges and believe 6% is more likely," he wrote.
Summing up his preference, the analyst said he continues to "prefer exposure to the higher-margin operator, at a substantial discount," referring to IAG over Lufthansa. The conclusions underline Citis focus on margin durability, balance-sheet strength, and shareholder returns when differentiating between Western European legacy carriers.