Southwest Airlines, Frontier Upgraded by Raymond James, Alaska Air Downgraded

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Raymond James analyst Savanthi Syth upgraded Southwest Airlines (NYSE:LUV) from Outperform to Strong Buy and Frontier Group (NASDAQ:ULCC) from Market Perform to Outperform on Thursday.

In a broad note on the airline industry, the analyst also downgraded Alaska Air Group (NYSE:ALK) from Strong Buy to Outperform.

The Frontier upgrade is based on the firm’s view that JetBlue is going to be successful in its bid for Spirit, while the Alaska downgrade is due to potential earnings and operational volatility around exiting the A320 fleet by early 2023. However, their “very favorable” long-term view remains intact.

Furthermore, Raymond James reiterated Strong Buy and Outperform ratings on Delta Air Lines (NYSE:DAL) and United Airlines (NASDAQ:UAL), respectively.

“We are also revising our U.S. airline estimates to reflect a stronger near-term revenue trend, but also stubbornly higher fuel prices, an anticipated demand softening, as well as planned and anticipated capacity growth moderation,” wrote Syth.

“While there have been numerous media reports about consumers rethinking travel given high fares, U.S. airlines are so far not seeing any softening of strong demand and yields even post summer, albeit in the context of normal seasonality and a small sample beyond the summer. We believe part of this resiliency is due to supply lagging demand by a meaningful margin. Notably, following a string of upward guidance revisions this quarter, Southwest only reiterated its May 26 outlook this week. However, revenue trends are exiting 2Q22 at a higher rate.”