United Upgraded on Spring Air Travel Demand. Why Southwest Is Downgraded. -- Barrons.com
Dow Jones Newswires March 10, 2023 07:14:00 AM ET
United Airlines and Alaska Air were both upgraded by Barclays Friday on strong spring air travel demand but the bullishness did not extend to Southwest Airlines, which picked up a downgrade.
U.S. airline stocks have enjoyed a strong rally to start 2023 -- the NYSE Arca Global Airline Index is up 17% since the start of the year. The rally paused briefly last month as investors awaited clues about how the key spring and summer months might shape up.
It's so far, so good -- demand looks to be staying strong and airfares remain elevated.
"Air travel demand remains robust heading into the peak spring-break period, likely supporting favorable guidance from most airline management teams," Barclays analysts, led by Brandon Oglenski said in a note Friday.
With that in mind they upgraded United (ticker: UAL) and Alaska (ALK) to Overweight from Equal Weight.
"We expect the continued recovery in long-haul international travel will drive outsized benefits for United in 2023," they said, also noting that international competition has reduced due to overseas airlines cutting back long-haul fleets. They raised their price target on the stock to $80, from $52, implying a 53% upside to Thursday's closing price.
While spring brings fresh optimism for the sector, even after its impressive start to the year, the same cannot be said for Southwest Airlines (LUV), at least according to Barclays.
The bank's analysts downgraded the stock to Equal Weight from Overweight. The shares have fallen 1.8% so far this year, missing out on the industry's rally as the carrier's holiday travel disruption has weighed on the stock.
"We are concerned the company's IT infrastructure remains outdated compared with peers," Oglenski said, adding that "more aggressive capital investments may be required" to close the gap.
The airline said that after mitigation efforts it is now confident in its ability to respond to irregular operations, in written testimony to the Senate Committee on Commerce, Science, and Transportation last month.
It also emerged largely unscathed operationally from severe winter weather in February.
"Southwest completion factor has recovered this winter despite significant weather events, but we would rather move our less-levered "safe" airline Overweight recommendation to Alaska Airlines," Oglenski added.
Write to Callum Keown at callum.keown@barrons.com
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