A recent advance among airline stocks angled higher early Thursday, after Alaska Airlines significantly boosted its Q3 outlook. Last week, JetBlue also raised its third-quarter outlook. Both companies point to industry trends improving after a rocky start to the year.
Airlines Lift Outlooks
"Throughout the summer travel period, we continued to experience strong demand as we flew a record schedule," Alaska Airlines wrote in its Thursday release. He touted a 99.3% completion rate quarter-to-date. He added that capacity remained in line expectations, "revenue has performed better than anticipated driven by additional revenue in July related to CrowdStrike disruptions across the industry and stronger performance in August and September."
Alaska Airlines hit an inflection point for unit revenue in August that carried into September. The company now expects total unit revenue to increase about 2% year over year for Q3. It previously projected flat to positive revenue growth.
Another plus: moderating fuel costs. Alaska now expects to spend $2.60 to $2.70 per gallon for Q3. The airline guided earnings to range from $2.15 to $2.25 per share, up from its previous outlook for $1.40 to $1.60. FactSet analysts expect earnings of $1.61 per share for the quarter.
Alaska's update comes after JetBlue on Sept. 5 lifted its own Q3 guidance. It also noted improving trends.
JetBlue now expects revenue to range from a 2.5% decline to a 1% increase. The company previously expected revenue to decline between 5.5% to 1.5%. JetBlue forecasts a 3% to 5% decline in available seat miles (ASMs) year-over-year, from previous forecasts of a 3% to 6% decline. The company also modestly lowered its expected per-gallon fuel cost.
JetBlue noted that improving bookings helped drive its quarter-to-date revenue performance, particularly in the Latin region. The airline also said its operational performance improved during the summer travel season as on-time flight performance picked up.
Analysts Respond
BofA Securities on Monday upgraded JetBlue to neutral from underperform and raised its price target on the stock to 6 from 3.
"Air travel demand as measured by (Transportation Security Administration) throughput has been stable in recent weeks as domestic capacity continues to moderate, coinciding with falling fuel prices," the analysts wrote. Throughput, which measures the number of passengers screened, is exceeding domestic supply growth for the first time since March, the analysts said. The firm added that it views the recent trends as an industry boon. Meanwhile, JetBlue's positioning is further supported by self-help measures.
"We believe now is a good time for investors to revisit quality (of airline stocks)," BofA wrote. The analysts mentioned Delta Air Lines and United Airlines as the other airlines most likely to be sound investments, Barron's reported.
TD Cowen also lifted its price target on JBLU stock to 6 from 5 and kept a hold rating on the shares.
Citi in late August noted that the U.S. airlines' had a "turbulent" Q3, including uncertainty surrounding U.S. elections, conflicts in Eastern Europe and the Middle East, as well as limited visibility on interest rates. As the negativity was "seemingly baked into valuations, this should be a time for investors to scoop up strong fundamental stories," Citi wrote at the time. The firm lowered its price target on ALK stock to 48 from 51 with the note but maintained a buy rating on the shares on Aug. 29.
But now those industry trends are showing signs of improvement. And CME Group forecasts an 85% chance for a 500 to 525 basis point rate cut for the Sept. 18, Fed meeting. Those factors should provide greater support for those "strong fundamental stories." Meanwhile, the bustling winter holiday travel season is just around the corner.
Airline Stocks
Alaska Airlines stock rose 1.2% on Thursday, edging further above its 200-day moving average. Shares rebounded above that technical line on Monday with the JetBlue upgrade.
Alaska is working on its sixth straight weekly advance, up 23% from an August low.
JBLU stock swung 4.8% higher Thursday, working on a fourth-straight weekly gain.
American Airlines rose 1% Thursday, up more than 20% since early August.
Delta stock closed flat Thursday after rallying more than 2% in early action. It's almost six-week advance has moved shares up the right side of a possible base pattern.
United Airlines stock added 2.4% Thursday. UAL stock has rallied more than 30% since early August. It is technically hovering near a 49.67 buy point for a double-bottom base.
You can follow Harrison Miller for more stock news and updates on X/Twitter @IBD_Harrison
