Turbulent Q1 For Airlines But Clear Skies Above The Clouds, Analyst Says

Morgan Stanley analyst Ravi Shanker remains bullish on the Airlines into the first-quarter earnings season and also for the rest of 2023.
Mid-quarter updates have effectively de-risked 1Q, and the focus will be on 2Q guidance/commentary, said the analyst.
The analyst noted that the mid-quarter updates from a few weeks ago were softer than expected but driven mainly by idiosyncratic cost issues, largely isolated to 1Q.
The analyst said capacity constraints remain restrictive, which is bad news for CASMxF but good news for price/RASM.
According to the analyst, the most important focus area would be revenue trends and forward booking curve commentary.
International recovery with China's reopening curve and view on the Transatlantic pipeline will also be important for the Legacy carriers.
The analyst thinks American Airlines Group Inc's AAL operational performance has also been relatively strong, bouncing back very quickly after a winter storm that impacted its main hub.
For Southwest Airlines Co LUV, though Q1 has been de-risked following the intra-quarter update, lingering issues from the December operational blip remain an overhang.
The analyst expects Delta Air Lines Inc DAL operating margins to come in at the midpoint of the 4-6%guide and hope to gain more color on the elongated booking curve, the corporate travel picture in 2023, and the sustainability of demand and yields going into the summer.
The analyst lowered the price target of Alaska Air Group Inc ALK from $75 to $71 and raised the price target of United Airlines Holdings Inc UAL from $67 to $70.
Some of the other important factors that the analyst will look in the Q1 earnings are capacity constraints, summer operational reliability and jet fuel mark to market.

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