UBS backs short-haul winners as UK airlines head into 2026

UBS says European airlines look set for another decent year into 2026 and highlights UK-listed short-haul names as buys — notably Jet2 and easyJet — while naming Ryanair the short‑haul pace‑setter and Wizz Air a buy as an earnings base forms; Air France‑KLM is neutral and IAG is a sell due to UK‑specific risks including potential Avios changes. The bank points to cheaper fuel, falling inflation, lower rates and continued travel appetite supporting demand, expects flat yields next year, and forecasts limited capacity growth (about 5% long‑haul and 4% short‑haul) with improving long‑haul, MRO and airfreight contributions. UBS also notes attractive valuations below five‑ and ten‑year averages but warns pricing could be patchy amid consumer weakness, geopolitical shocks or airlines passing on lower fuel costs.

Analysis

UBS projects a constructive 2026 for European airlines and explicitly places UK short-haul names on its buy list, naming Jet2 and easyJet as buys, Ryanair as the short‑haul pace‑setter due to its low‑cost base and ongoing share buybacks, and Wizz Air as a buy as an earnings base forms. The bank singles out IAG as a sell on concern about the UK macro backdrop and potential changes to the Avios loyalty scheme, while Air France‑KLM is rated neutral.

The bullish case rests on observable tailwinds: cheaper jet fuel, falling inflation, lower interest rates and sustained travel demand, with UBS expecting improving long‑haul demand plus stronger contributions from MRO and airfreight. UBS also expects yield per passenger‑km to be broadly flat in 2026 and anticipates capacity discipline in H1 2026 with supply growth of about 5% in long haul and 4% in short haul.

Valuations are cited as supportive, with airline multiples below five‑ and ten‑year averages, but UBS warns pricing will be patchy and flags risks from weaker consumers, geopolitical shocks or airlines passing on lower fuel costs. The note implies a selective long bias toward operators with package‑holiday exposure or capital returns, while avoiding carriers exposed to UK‑specific loyalty and macro risks.

Key Decisions for Investors

• Consider overweighting selective UK short‑haul exposure such as Jet2 and easyJet and Ryanair for cost‑advantaged scale and buyback support, focusing on names with package holiday or capital‑return profiles
• Avoid or underweight IAG given UBS's sell call and identified Avios/UK‑specific risks; consider hedges or options protection if exposure is material
• Monitor key indicators—jet fuel prices, consumer spending, yield trends and announced capacity plans—and be prepared to reduce cyclic exposure if yields deteriorate or capacity growth accelerates beyond UBS's ~4–5% guidance
• Use the valuation gap to add on meaningful weakness but prioritize companies with predictable cash returns or diversified revenue streams (holidays, MRO, airfreight) rather than pure long‑haul carriers