Buckingham Maintains Buy On U.S. Airliners After Conference With Industry Giants

• Buckingham Research Group remains bullish on U.S. airlines following its recet airline conference.
• Despite weak December demand, the firm sees plenty of positive 2016 catalysts ahead.
• Buckingham named American Airlines Group Inc AAL as its top stock pick.

Buckingham Research group analyst Daniel McKenzie is as bullish as ever on U.S. airline stocks following the company’s recent airline conference. In a new report, McKenzie discusses seven key points from the conference.

1. December demand has been lackluster for no clear reason, but McKenzie suggests that the Paris and San Bernadino terrorist events and the calendar shift (fewer peak travel days this December) could be playing a role in weak demand.

2. American Airlines management expects that current initiatives will have a “transformative effect on 2H16 revenue,” which McKenzie interprets as an indication of positive PRASM starting in Q3 of 2016.

3. The investments that United Continental Holdings Inc UAL has made in its business should drive margin improvement in 2016, and Buckingham expects non-fuel CASM to trend up 3.0-4.0 percent on labor deals.

4. Southwest Airlines Co LUV’s primary goal is to boost PRASM in 2016, and Buckingham believes that Dallas alone could provide up to a 1.0 percent boost to PRASM next year.

5. Virgin America Inc VA has multiple revenue drivers in 2016, including further technology improvements and supply stabilization in the transcon markets.

6. In the near-term, the devaluation of the Argentinian peso likely means revenue downside for airlines.

7. Buckingham believes the recent selloff in Spirit Airlines Incorporated SAVE is simply profit taking following the 28 percent run-up over the past month.
 

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Top pick
Overall, Buckingham named American Airlines its top stock pick in the space, but the firm maintains its Buy rating on the entire U.S. airline space.

McKenzie mentions Neutral-rated Allegiant Travel Company ALGT as the lone exception.

Disclosure: the author holds no position in the stocks mentioned.