Airlines' Capacity Growth Strategy

Deutsche Bank's analyst, Michael Linenberg, has reevaluated the U.S. airline industry's capacity growth plans, predicting a positive impact on Southwest Airlines and other regional carriers.

Boost for Southwest Airlines Stock

Linenberg upgraded Southwest Airlines' stock rating to Buy from Hold, with a revised price target of $42, up from $28. JetBlue Airways and Alaska Air Group also saw their ratings upgraded to Buy from Hold for similar reasons.

Stock Performance

• Southwest's shares saw a 2% increase, trading at $34.65.
• JetBlue stock rose by 0.2%.
• Alaska's stock gained 3.5%.
• In contrast, the S&P 500 was down by 0.9%.

Changing Outlook in Capacity Growth

According to Linenberg, the forecast for domestic capacity in 2024 has shifted significantly in the past few months. Major airlines like Southwest are adjusting their growth plans to align with the current travel landscape post-pandemic.

This strategic shift is expected to drive domestic unit revenue growth, presenting promising opportunities for airlines focusing on the domestic market.

Positive Implications

Linenberg emphasized that moderating domestic available seat mile (ASM) growth for 2024 will likely boost unit revenue performance. This trend is anticipated to lead to strong top-line results for airlines with a focus on the domestic market.