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Barclays analysts said spring is looking bright for airline stocks, as he upgraded United Airlines (NASDAQ:UAL) and Alaska Air Group (NYSE:ALK) to Overweight and downgraded Southwest Airlines (NYSE:LUV) and Allegiant Travel (NASDAQ:ALGT) to Equal Weight in a note to clients Friday.
“Air travel demand remains robust heading into the peak spring break period, likely supporting favorable guidance from most airline management teams,” the analysts wrote.
They acknowledged that first quarter results could be a bit softer due to higher fuel prices and less robust business travel in January and February, but they expect a strong March outcome from both leisure and business demand will drive solid yield guidance for 2Q23.
Barclays is also swapping its “safe” airline call from large-cap Southwest to small-cap Alaska as they want to “reduce execution risk from the equation.”
“While we know Southwest shares are trading near pandemic-related lows the past two years, we find most airlines remain depressed at current valuations,” wrote the analysts. “Southwest completion factor has recovered this winter despite significant weather events, but we would rather move our less-levered, or ‘safe,’ airline Overweight recommendation to Alaska Airlines. For Alaska, the company maintains low net balance sheet leverage and is currently generating the highest operating profitability of the major airlines since 2022.”
