Deutsche Bank analyst Michael Linenberg presented the June quarter preview for the airline industry. The analyst writes that U.S. domestic air travel hit a record high in the first half of 2024, with TSA screenings up 7.4% Y/Y.
The analyst adds that airlines performed well operationally in the June quarter, showing significant improvement from a year ago.
The sector is expected to post strong June quarter results with 4% top-line growth to $62 billion (on 7% more capacity), $6.2 billion operating profit, and an operating margin of ~10%, writes the analyst.
However, the analyst projects most of the industry's top-line growth and operating profit to come from full-service carriers.
Linenberg expects American Airlines Group Inc.
In summary, the analyst supports United Airlines and Delta Airline's full-year EPS outlooks ($9 - $11 and $6 - $7, respectively) but expects American Airlines to lower its 2024 EPS guidance (currently $2.25 - $3.25) vs. estimate of $2.00.
On the other hand, the analyst anticipates that many low-fare carriers will report losses despite the strong demand for air travel.
Meanwhile, the analyst downgraded Allegiant Travel Company
Also, the analyst lowered the rating for Spirit Airlines, Inc.
Linenberg writes that Allegiant and Spirit saw substantial earnings reductions for 2024 and beyond due to production challenges amid inflation and external factors like delayed aircraft deliveries and air traffic constraints.
He further adds that Allegiant continues transitioning its Sunseeker resort, likely impacting earnings into 2025. Spirit's ongoing liability management exercise may lead to shareholder dilution, potentially affecting its share price.
Overall, Linenberg says that airlines focused on the domestic market and price-sensitive customers will be the first to feel the impact of a slowing economy.
Those rapidly expanding and entering new markets face even greater risks and have seen the largest estimate reductions for 2024 and, in some cases, for 2025 and 2026, writes the analyst.
