UBS eyes possible break in the clouds for IAG, RyanAir after referendum

A break in the clouds of political uncertainty might allow European airline carriers shares to recover some of the year-to-date drop, UBS said.

Investors have been eyeing downside risks to the earnings of companies in the space due to fuel price increases and capacity additions.

However, political uncertainty had also been a factor in the EU airlines index's approximate 17% year-to-date drop, with a 7% decline having come in just the last 30 days, analyst Jarrod Castle said in a research note sent to clients.

"We also think that political uncertainty has added to concerns and this overhang will reduce in the coming weeks. Perhaps investors' will find a renewed appetite for the airline space" he said.

Given the compression in valuation multiples as a result of the potential risks surrounding the referendum, Castle said he saw upside potential to share prices going into the second quarter results reporting season in July.

The analyst said he continued to be positive on RyanAir, IAG and Lufthansa, sticking with 'buy' ratings on all three stocks.

As an aside, in the same report he also expounded a constructive view on shares of airport operators Aena and Flughafen Zurich on expectations for solid growth in their seat capacity throughout the remainder of 2016