Concerns about rising fuel prices and overcapacity kept US airline stocks close to rock bottom throughout 2018. Last quarter’s earnings, and, most importantly, outlook for the next quarter, however, have dashed investors’ concerns, as experts predict a continuation of the growth trend limited not only to Spirit Airlines (SAVE) and the Alaska Air Group (ALK).
After posting better than expected outlook for the fourth quarter of 2018, Spirit Airlines shares rose by roughly 17% on Tuesday. Airlines can now rely on declining fuel prices, increased load factor of flights (increased flight occupancy), higher charges for extra services (luggage, seat reservations), and a modest increase in expected capacity for 2019. JP Morgan’s analysts also reacted positively to these projections, raising their rating for the stock from Neutral to Overweight, and their target price from $59 to $82.
In their view, SAVE shares will also reach a value of $77 per share, even if the price of oil should again begin to recover. The latest outlook would seem to confirm the revenue growth trend, which is expected to continue into next year. The recent developments with Spirit Airlines have also been echoed by Helane Becker of Cowen & Co., who is convinced that the company has proven to have room for revenue growth beyond ancillary revenue.
Spirit Airlines isn’t the only US airline to have attracted analysts’ attention in recent weeks though. Goldman Sachs also recommends (in their Conviction Buy) Alaska Air Group (ALK) shares, with a target price of $85. According to their prediction, the company will soon begin to reap significant benefits from acquiring Virgin America at the end of 2016. They are similarly optimistic American Airlines (AAL) and Delta Airlines (DAL), which will benefit primarily from more favorable fees structuring as well as a modest increase in capacity. On the other hand, investors should be wary of Hawaiian Airlines, which are struggling in the current competitive environment.
