British Airways and Iberia owner International Consolidated Airlines, otherwise known as IAG, was flying high on Friday morning after UBS upgraded its rating for the company from 'neutral' to 'buy' following the stock's underperformance last year.

The shares rose 25% in 2012, but IAG was still the worst performing European airline stock under UBS's coverage, underperforming Lufthansa by over 30% and Air France KLM by 45%.

"We think that IAG could be the laggard most likely to outperform in 2013 should it achieve the concessions the company wants from Iberia staff," the broker said in a research report.

UBS said that there are increases hopes over the restructuring of IAG's Spanish unit Iberia, while labour discussions resulted in a five-year deal with unions last month.

"Despite the tough conditions in Europe with its international network, we see the company as a play on global economic recovery.

"Furthermore, should the fuel price continue to be stable (indeed the Brent futures curve shows backwardation), and the euro continue to rise or remain stable, then we see 2013 delivering a fuel tailwind. Industry capacity discipline based on our analysis is in place for 1H 2013."

The broker has hiked its target price for the shares from 185p to 250p.

Shares were up 2.79% at 202.4p by 09:44.

BC

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International Consolidated Airlines Group SA (CDI) (IAG) share price