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Key Takeaways
- Airline stocks moved higher Monday after positive comments on the industry by BofA Securities.
- Analysts say airlines could benefit from moderating domestic capacity, stable demand, and lower fuel prices.
- BofA upgraded JetBlue stock to “neutral,” highlighting the carrier’s recent outlook boost as a sign of progress on its strategic initiatives.
Shares of major U.S. air carriers gained altitude on Monday after BofA Securities published upbeat comments on the industry and upgraded JetBlue Airways (JBLU) stock to “neutral” from “underperform.”
JetBlue shares finished 7% higher Monday after the upgrade. Meanwhile, shares of rival United Airlines (UAL) were among the top performers in the S&P 500 on Monday, with a gain of nearly 6%, as Delta Air Lines (DAL) shares added 4%.
Industry Tailwinds Forecast
BofA said it believes the airlines are poised to benefit from an ongoing moderation in domestic capacity. Analysts expect domestic capacity growth to slow to around 2% in September through November, close to the slowest pace of the year and down from a peak of more than 6% in May and June.
Although airlines have struggled with pricing power this year, analysts say the capacity improvements—alongside expectations for stable demand—should help drive strong revenue trends across the industry.
According to the BofA analysts, the possibility of lower fuel costs ahead represents another positive for the industry. Airlines might also be set for a seasonal uptick, as they tend to outperform in the fall.
JetBlue Showing Signs of Improvement
Analysts said an outlook boost from JetBlue last week suggests the company is having some success with its initiatives to improve its strategic position. In addition to upgrading the stock, BofA lifted its sales and profit forecasts for JetBlue and doubled its price target on the stock to $6 from $3.
After jumping 2.6% on Monday, the airline industry benchmark U.S. Global Jets Exchange-Traded Fund (ETF) (JETS) is essentially flat year-to-date. That compares with a gain of around 15% in the same period for the S&P 500.