Air France-KLM SA (EPA:AIRF) stocks dipped on Friday after Barclays downgraded the airline to 'underweight' from 'equal weight,' setting a target price of €10, implying a 12.8% drop from the closing price of €11.47 on June 4. They cited concerns that the recent revenue boost from Asian and African routes is unlikely to hold.
The downgrade occurred despite Barclays raising its EBIT estimate for the 2026 fiscal year by 13% after updating fuel cost assumptions in line with the current forward curve for kerosene. Even with the revised estimates, Barclays remained 7% below the Bloomberg consensus forecast.
Over the past three months, the stocks have risen by 10.1%, marking the second-best performance among the European airlines covered by Barclays, after Finnair, and significantly outperforming the stagnant CAC40.
This rise occurred after the stocks sharply declined to a recent closing low of €8.56 on March 31, then rebounded by 31.4% to close on Thursday. According to Barclays, this surge was driven by falling fuel prices and a reported 30% increase in unit revenue in Asia during March and April 2026.
Year-to-date, the stocks are still down 6.5% compared to the closing price on January 2 at €12.27 and significantly below its 52-week high of €15.16. "We believe the optimism is excessive," the broker stated.
The primary bearish scenario from analysts was based on the recovery of capacity from Gulf airlines. According to Flight Radar data from May 26, Emirates was operating at about 85% of normal capacity, Etihad at 75%, and Qatar Airways at 50%.
Barclays stated that the resumption of ticket sales by Gulf airlines would make a 30% increase in unit revenue in Asia evidently "unsustainable," and expects that yields in Asia will shift from above average to below normal levels. A decline in high unit revenue from freight operations was also anticipated.
According to revised estimates, Barclays projected revenue for the 2026 fiscal year at €34.67 billion, operating profit at €1.45 billion with a margin of 4.2%, and adjusted EBITDA at €4.64 billion with a margin of 13.4%, which is lower than €5.06 billion in the 2025 fiscal year.
The group’s net profit was downgraded to €285 million in the 2026 fiscal year from €1.60 billion in the 2025 fiscal year, reflecting a drop in adjusted EPS to €1.08 from €5.68. The growth in RASK (revenue per available seat kilometer) from regular passenger transport was cut to 3.5% from the previous estimate of 4%, with reductions mainly linked to Transavia fares.
The DCF valuation, using a weighted average cost of capital (WACC) of 6.8% and a mid-term EBIT margin of 5%, gave an equity valuation of €2.63 billion, or €10.01 per share, rounded to a target price of €10.
The bullish scenario with a mid-term EBIT margin of 5.5% indicated a value of €14.50, while the bearish scenario at 4.75% pointed to €7.80.
Barclays has acknowledged the geopolitical uncertainty factor: achieving lasting peace in the Middle East could provide a boost to airline stocks in general, although the broker noted that this would "also immediately lead to a weakening of unit revenue in Asia and from freight operations."