A recovery in leisure travel is “in full swing” and airline bookings are in upswing, analysts at Bank of America said in a note Monday, raising their expectations for share prices for a few of the U.S. air carriers.
A “reopening trade” that began in November alongside vaccine news has lifted U.S. airline market caps 7% above pre-pandemic levels, compared with 10% below for most of the travel industry, including European airlines and U.S. hotels and cruise lines, the analysts said.
“With a strong recovery reflected in the stocks, the ability to meet or beat estimates will be important and support the ‘return to fundamentals’ theme,” they said.
They raised price targets on “robust bookings momentum” and “prefer leisure exposed airlines with good balance sheets”: Southwest Airlines Co.
Alaska Air Group Inc.
and JetBlue Airways Corp.
Delta Air Lines Inc.
also got a price-target increase.
Stocks of major airlines fell alongside the broader equity market on Monday, but have been on an upswing in March, with American Airlines Group Inc.
leading the pack with a 7% gain so far this month, followed by United Airlines Holdings Inc.
with a 5% advance.
B. of A. analysts raised their price targets on Southwest shares to $68 from $60; on Delta to $49 from $46; on Alaska to $78 from $72; and on JetBlue to $22 from $19.50.
Smaller airline Allegiant Travel Co.
and Spirit Airlines Inc.
also got price-target increases, with the price target on Allegiant raised to $260 from $245 and the price target on Spirit to $37 from $36.
Analysts at Raymond James also noted the “encouraging” trends in bookings for U.S. airlines, saying that they have been “the strongest” so far in the pandemic.
Travel restrictions imposed during the pandemic devastated airlines, crimping demand for air travel and leading airlines world-wide to cut capacity, furlough employees, cut costs and survive on government bailouts.
“We expect investors … (to) focus on overall revenue and cash flow recovery with earnings season commentary likely encouraging heading into the peak summer season,” the Raymond James analysts said. “Potential risks include possible bookings recovery moderation between the Spring Break/Easter and summer travel periods and more resistant COVID variants gaining a foothold.”
For business travel, a “meaningful” demand recovery is expected only in the second half of the year, they said. Short-term momentum is “most pronounced” for JetBlue and Spirit, they said.