If you think you’ve missed out on the Great Airline Recovery, Wall Street would like you to think again. Several analysts have voiced bullish views on the sector, saying stocks are still on the rise, despite gaining around 30% this year and rising 91% in the past six months. Of course, the industry is no longer cheap. But vaccine deployments and the end of the pandemic are driving demand. While still urging caution, the Centers for Disease Control and Prevention now says fully vaccinated people can fly at “low risk.” Wall Street, meanwhile, expects air traffic in 2022 to surpass 2019 levels, fueling more gains for an industry that has been one of the biggest winners from the so-called reopening of trade. “A Roaring 20s / Swinging 60s type macro environment can generate significantly higher traffic than the 2019 baseline, in a bullish deal,” writes Morgan Stanley analyst Ravi Shanker. Overall, he sees 30% higher than his price targets on long-rated stocks and 45% longer-term gains, based on consensus estimates from 2023. On Tuesday, Shanker said upgraded the Alaska Air Group (ticker: ALK) to an overweight rating and downgraded United Airlines Holdings (UAL) from underweight to tied. It increased its price targets on JetBlue Airways (JBLU), Delta Air Lines (DAL) and Southwest Airlines (LUV), reiterating the equivalent of purchase ratings. He also launched the American Airlines Group (AAL) cover with an underweight rating. Newsletter sign-up Review and overview Every night of the week, we highlight the resulting market news and explain what matters tomorrow. The trip appears to be taking off in a V-shaped recovery. Domestic passenger traffic hit 1.5 million passengers per day in early April. This compares to 108,000 last April. And it is only 38% lower from April 2019 levels of around 2.4 million daily passengers. Carriers are now adding return flight capacity and staff to handle more bookings for the summer and fall. The industry is also encouraging travel with more lenient cancellation and change fee policies, as well as ongoing efforts to reassure passengers that health security on board aircraft is relatively strong. The bullish equity deal hinges on a recovery in travel faster than consensus estimates. Shanker believes this is happening. Wall Street is now modeling 2022 revenues which are 20% lower than 2019 levels, and available seat miles – a measure of capacity – which are 10% lower. It’s too low, in his opinion. It expects capacity to return to 2019 levels by early 2022, implying a stronger revenue recovery. He also thinks the street is too conservative in modeling 2019 as a baseline for 2023. His analogy: In the 1920s revival of World War I and the Spanish flu, the number of kilometers driven by car has almost doubled in five years. Then, in the 1950s, the volume of commercial airlines increased sixfold after World War II. “While travel is certainly more mature,” he wrote, “we wouldn’t be surprised to see the ‘golden age’ of travel return in the 2020s.” Other reasons for optimism include structurally lower operating costs across the industry and jet fuel prices that remain below 2019 levels, despite a 40% jump from their troughs in the industry. last year. However, other analysts are not so optimistic. Stephen Trent of Citigroup notes that while the travel rebound has arrived, balance sheets have widened and the number of shares of some carriers has jumped since the issuance of shares during the pandemic. Industry may also add return capacity too quickly to meet demand, which puts pressure on fares prices. Trent still sees “attractive advantages” at Delta and United, which are more closely related to a recovery in international and business travel. But he demoted Spirit Airlines (SAVE) to a neutral rating, writing that the stock is now close to being measured at fair value. Bernstein analyst David Vernon reiterated an outperformance rating on Delta, writing that the airline could shift from consuming cash to earnings faster than consensus estimates. He increased his target on Delta shares to $ 64, from $ 61, based on the airline’s “earning power” in 2023. “The international recovery will take longer,” writes Vernon, “ but as we begin to reopen European markets, Delta’s historic strong position in the transatlantic area puts them in good shape to be among the first to participate in a significant international recovery. JetBlue is also trying to inflate some analysts. Raymond James’ Savanthi Syth upgraded the stock to outperform on Wednesday, based on improving booking trends, improving profitability and new revenue drivers, including an alliance with American. She sees the stock hit $ 24, up from recent prices of around $ 21. As for the American, it remains an enigma for several analysts. As the company reports stronger bookings and traffic trends, the stock has jumped 54% this year, well ahead of the industry. The US balance sheet is stressed by debt, and it has diluted its equity to consolidate its cash flow and capital base. Daniel McKenzie of Seaport Global Securities reiterated a neutral rating on the stock last week. “We’ve always liked AAL as a recovery story, but at 6.5x our 2022 Ebitdar outlook, stocks aren’t cheap at current levels,” he wrote, referring to earnings before interest, taxes, depreciation, depreciation and rent. Investors who do not want to choose sides in these debates can gain exposure to the sector through the US Global Jets ETF (JETS). It was up 1.2% Tuesday to around $ 28 and is up 25% on the year. Write to Daren Fonda at [email protected]
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