Delta, Southwest Airlines Could Gain Altitude In The Second Half Of 2017

There's a lot to like going forward with Delta Air Lines, Inc. DAL and Southwest Airlines Airlines Co LUV, according to Bank of America analyst Andrew Didora.

“We estimate core industry RASM (ex-Easter shift) can remain steady through year end, but 3Q will likely be better for those with declining capacity and easier comps (LUV, DAL). We maintain our positive view on the group as margins expand and valuations are in line with historical ranges,” Didora said.

Didora maintained his Buy rating on both Delta and Southwest Airlines, but with a couple changes in price targets: Detla up from $64 to $71 and moved Southwest from $62 to $75.

3 Growth Catalysts

Didora expects steady growth in second half of 2017, and key demand indicators (PMI, Leading Economic Indicators, BofA credit/debit card data) all seem to be in solid shape.

While some believe low fuel prices could lead to an increase in capacity, Didora doesn't think this is the case.

“In our view, fuel prices would have to fall below $40 for a sustained period of time before any changes in the US airlines’ capacity plans would occur,” he said.

Didora raised his estimates and price objectives as lower fuel costs should help drive margins.

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