LATAM Airlines (LTM) is well positioned to navigate the recent surge in oil prices, underpinned by its profitability, manageable leverage and partial fuel hedging, Morgan Stanley said in a recent note.

The airline's strong financial position and partial fuel hedging should help mitigate the impact of higher jet fuel prices, even though elevated oil costs are expected to weigh on earnings in 2026. The bank added that the company's valuation still appears attractive relative to historical levels and peers, even when factoring in weaker cyclical earnings.

Morgan Stanley expects LATAM's profitability to gradually recover as airlines pass higher fuel costs on to passengers through fare increases, with recent flight data already indicating rising ticket prices. Cost pass-through and an eventual normalization in oil prices could further support earnings, the bank said.

However, Morgan Stanley cautioned that risks remain if higher fares begin to weigh on travel demand or if oil prices remain elevated for longer than expected, which could limit airlines' ability to offset rising fuel costs.

Morgan Stanley upgraded its rating on the stock to overweight from equal-weight and raised its price target to $60 from $61.

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