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. AAL, Delta Air Lines, Inc. DAL, and United Airlines Holdings, Inc. UAL to account for 92% of June quarter 2024 top-line growth and 91% of operating profit. The analyst reiterated the Buy rating on these stocks.
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.
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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 ALGT from Buy to Hold and lowered price target from $75 to $53.
Also, the analyst lowered the rating for Spirit Airlines, Inc. SAVE from Hold to Sell and the price target from $3 to $2.
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.
Also Read: Spirit Airlines CFO Haralson Joins Struggling Hertz To Lead Car Rental Firm’s Cost-Cutting Efforts
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.
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
Photo via Wikimedia Commons
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