European airline stocks remain broadly out of favour with investors, but positioning has improved slightly week-on-week and consolidation across the sector is emerging as a focus theme, according to Citi's latest positioning analysis.
The note, based on data from the bank's quantitative research team, shows IAG, the owner of British Airways and Iberia, as the only consensus long among European carriers, though positioning turned more bearish in the most recent week.
Ryanair has seen the largest increase in long positioning over the past month and drew the most interest during Citi's recent European marketing, with two questions dominating investor debate.
The first was what the short-haul European market might look like in two years if fuel prices remain at current levels, and the second was whether investors would be willing to look through near-term margin pressure at Ryanair in exchange for the improved competitive positioning that lower fuel costs could deliver.
Among the consensus shorts, both Lufthansa and Air France-KLM saw short positions cut and long exposure increase week-on-week, suggesting some tentative improvement in sentiment toward the legacy carriers.
Wizz Air retains the highest short crowding of any European airline in the data set, with little movement in either direction over the past week or month.
The broader takeaway from Citi's marketing was that while the sector remains unloved in aggregate, European consolidation is attracting increasing attention as a potential catalyst for a re-rating, particularly if the fuel environment stays supportive.
