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Transatlantic Flights Shine as Short-Haul Airlines Face Headwinds
15 Oct
Summary
- Long-haul operators with premium transatlantic routes expected to maintain pricing power
- U.K. leisure capacity expansion risks putting pressure on low-cost carriers
- IAG named top pick, with British Airways' Heathrow slots and premium cabin mix seen as key advantages
As of October 15th, 2025, Morgan Stanley has initiated coverage on Europe's airline sector, painting a broadly cautious picture for short-haul carriers but seeing stronger earnings potential from long-haul operators.
The bank's analysts describe the setup as "Short Haul Pain, Long Haul Gain", noting that transatlantic routes remain the most profitable part of the market. Meanwhile, the analysts warn that U.K. leisure capacity expansion risks putting pressure on low-cost players like easyJet, Jet2, and Wizz Air, with capacity growth into the winter heavily skewed towards these carriers.
On the flip side, long-haul operators with exposure to premium transatlantic travel are expected to maintain pricing power thanks to capacity discipline and resilient corporate demand. International Airlines Group (IAG) is named the top pick, with the analysts arguing that British Airways' dominant slot position at Heathrow and strong premium cabin mix leave the group best positioned to benefit from this dynamic.
The analysts expect IAG's profit forecasts to move higher, citing conservative market assumptions on unit costs and fuel. They also project multi-year buybacks for both IAG and Ryanair, which is also rated Overweight, as the low-cost carrier's cost base is seen allowing it to sustain growth and recover pricing.
