UBS is starting coverage on many U.S. airlines, highlighting the relevance of supply and demand dynamics in driving RASM growth and margin performance until 2025.
Citing robust balance sheets, varied income sources, and previous profitability as main points, the investment company assigned Buy recommendations for Alaska Air Group (ALK, Financials), Delta Air Lines (DAL, Financials), and United Airlines (UAL, Financials).
Neutral ratings came for American Airlines Group (AAL, Financials), Allegiant Travel Company (ALGT, Financials), and Frontier Group Holdings (ULCC, Financials). Assigning Sell ratings to both Southwest Airlines (LUV, Financials) and JetBlue Airways (JBLU, Financials), UBS cautioned on both. Analysts cited Southwest's poor pretax margins, insufficient revenue diversification, and slower Available Seat Mile growth. UBS highlighted for JetBlue difficulties reaching positive operating margins in 2025 and expected cash deficits through 2026.
Driven by increasing RASMs and perhaps reduced fuel costs year-over-year, UBS projected an industry-wide pretax margin of 6.6% in 2025, up from an expected 5.4% for 2024. UBS added, "We forecast a 3.5-4.0% growth rate in U.S. industry passenger revenues in 2025 and 2026, which is broadly in line with the long-term average of 4%."
