Barclays analysts downgraded Air France-KLM and Lufthansa to Underweight on Tuesday, arguing that recent optimism surrounding traditional network airlines is excessive. The bank maintained its preference for low-cost carriers and holiday-focused airlines, suggesting investors shift focus away from flag carriers as market confidence appears misplaced heading into 2026.

The downgrade reflects concerns that conditions on key North Atlantic routes will deteriorate. A weakening U.S. dollar and geopolitical tensions may curb inbound travel, while tough year-over-year comparisons loom after a period of exceptionally strong transatlantic trading. Barclays also warned that premium leisure demand, though resilient post-pandemic, might not prove as durable as expected.

Specific risks vary for each carrier. Air France-KLM faces high exposure to Atlantic volatility and operational headwinds from winter storms at Amsterdam Schiphol, which may impact earnings by nearly €100 million. Lufthansa’s downgrade stems from concerns that investor optimism has outpaced fundamentals, citing potential labor disruptions and uncertainty surrounding its acquisition of ITA Airways.