Ryanair a Top Pick, IAG to Benefit From Tight Capacity in London

Bernstein analysts pointed to Ryanair (NASDAQ: RYAAY) and IAG (LON: IAG) as standout opportunities in the European airline sector in a note this week, highlighting strong market dynamics and favourable cost conditions.

According to the firm, EU airlines currently “offer more attractive exposure” compared to other aviation-related stocks, benefiting from strong yields and declining fuel prices.

The firm believes that for the first time in decades, the European airline market is “under-supplied,” which has resulted in an advantageous pricing environment for carriers. 

Bernstein says falling fuel costs further enhance profitability, with airlines well positioned to capitalise on the trends compared to their tech-focused counterparts, which are “geared to passenger and booking volumes.”

Ryanair is Bernstein's “top pick,” with the analysts highlighting its ability to deliver “double-digit annual cash returns.” 

The low-cost carrier's efficiency and scale allow it to maximise gains in the current environment, making it a standout performer in the European market.

Meanwhile, IAG, the parent company of British Airways and Iberia, is also rated “Outperform” by Bernstein, which notes that the carrier benefits significantly from “extremely tight capacity” in key markets such as London and the North Atlantic, where constrained supply boosts pricing power and revenue potential.

Despite a 2% decline in Tuesday’s session, IAG shares have performed well this year, climbing over 55%. However, Ryanair shares have struggled, down 14.6% this year.