Deutsche Bank analyst Michael Linenberg upgraded several airline stocks and reiterated rating on few on the expectation of the major carriers having vast domestic networks to benefit from a more balanced domestic supply backdrop.
In particular, the analyst upgraded Alaska Air Group Inc
Also, Linenberg boosted the rating of JetBlue Airways Corp
For Alaska Air, the analyst says the benefits of the company's seasonal shaping initiatives are too significant to ignore and sees upside earnings risk to the 2024 EPS estimate of $4.00 (and the consensus mean EPS of $4.21).
For JetBlue Airways, Linenberg writes that the change in senior management and the involvement of an activist (who recently secured two Board seats) acts as a tailwind.
Meanwhile, Southwest Airlines is expected to benefit from its network restructuring, and that of its competitors, and the company has not been impacted by any of the issues that have led to grounded aircraft among its competitors, says the analyst.
Regarding the airline industry, the analyst says that the outlook for domestic capacity in 2024 has significantly changed over the past four months, with most airlines moderating their growth plans following an over-supplied domestic market scenario in the second half of 2023.
Also, some carriers are rethinking their 2024 growth plans due to weak earnings, and industry supply has also "taken a hit" on various manufacturing-related issues, resulting in grounded aircraft.
Overall, Linenberg expects domestic capacity growth to be about 4.5% in the first half of 2024 and projects second-half 2024 growth to be lower than the first half of the year.
The analyst sees more moderate domestic available seat mile growth for 2024, resulting in positive domestic unit revenue performance, and can translate into strong top-line performance for the domestic-focused names.
