Morgan Stanley Reverses Course on Lufthansa Stock

Morgan Stanley downgrades Lufthansa, slashing its price target. The bank cites soaring jet fuel costs, a weak hedging strategy, and a forecasted 17% EBITDA hit as key reasons.

In a significant shift, analysts at Morgan Stanley have downgraded their rating for Deutsche Lufthansa AG. The move represents a complete reversal from the bank's position at the start of the year, when it named the airline its top pick within the European transport sector.

The US investment bank has moved its recommendation from "Overweight" to "Equal-Weight." Concurrently, it has slashed its price target for the shares from €9.40 to €7.50. This marks a two-step retreat; Morgan Stanley had only upgraded Lufthansa in January via a double upgrade from "Underweight" to "Overweight." The stock reacted to the news on Thursday, declining by approximately 4 percent. This leaves the share price trading about 21 percent below its 52-week high of €9.50, which was reached in February.

Soaring Fuel Costs Pressure Profits

The central reason for this reassessment is rising jet fuel expenses, driven by the ongoing conflict in the Middle East. Morgan Stanley's analysis forecasts a fuel cost impact of €1.6 billion for Lufthansa. This is expected to reduce the company's full-year 2026 EBITDA by roughly €800 million, or 17 percent, compared to prior projections. The bank notes a structural delay in the normalization of kerosene prices, with the market for refined products remaining tight.

A particular point of concern is Lufthansa's hedging strategy, which appears less effective than those of its peers. While the analysts project only a 6 percent EBITDA decline for IAG and a 10 percent drop for Air France-KLM due to fuel costs, Lufthansa is forecast to suffer the steeper 17 percent reduction. Furthermore, Morgan Stanley anticipates load factors will decrease by around 2 percentage points starting in the third quarter. The airline's capacity growth is also expected to slow, revised down from an initial 4 percent to 2.5 percent.

Strategic Shifts and Summer Growth Provide Some Balance

Operationally, Lufthansa continues to pursue expansion. For the summer of 2026, the group plans approximately 1,600 additional flights from its hub airports. These will include new connections to Chennai, Delhi, Hyderabad, and Bangalore. Resources freed up by adjustments to its Middle East program are being directly reallocated to these routes.

Structurally, a restructuring program is underway, involving a reduction of around 4,000 positions. The introduction of new intercontinental aircraft and the Allegris cabin interior are medium-term initiatives aimed at lowering costs and boosting revenue. Additionally, starting in July, the air passenger tax for departures from Germany is set to decrease—a regulatory relief that should at least support demand.

Morgan Stanley itself acknowledges that since the beginning of the year, Lufthansa shares have fallen by about 9 percent, significantly less than the roughly 16 percent declines seen at both IAG and Air France-KLM. The bank describes this discrepancy as "unjustified." Whether this relative outperformance is sustainable will become clearer on May 5, when Lufthansa is scheduled to release its quarterly figures for the first quarter of 2026.