Credit Suisse Highlights U.S. Airline Sector, Notes Winners & Losers

In a report published Tuesday, Credit Suisse analyst Julie Yates discussed the U.S. Airline sector, noting that the biggest positive from the second quarter earnings season was "the absence of an incremental negative" beyond

's conference call commentary. Looking forward to the third quarter, the overall sector is expected to report unit revenues worse than the second quarter. However, this is "widely expected" and unit revenue guides appear to be "broadly achievable." Here is a summary of Yates key commentary for the third quarter and beyond.

According to Yates,

is best positioned in the bottom half of 2015. In addition, the company's progress on cost reductions and de-risking its balance sheet is "underappreciated by the market." In addition, the company's November investor day presentation and a rising share buyback cadence are also "nice catalysts."

According to Yates, as investors begin valuing airlines on 2016 estimates,

will remain a "relative favorite" among legacy carriers. The analyst continued that even under a $70 per barrel oil scenario in 2016, Delta can still deliver 15 to 20 percent earnings per share growth. If the company can achieve its third quarter PRASM guidance and remain on track to achieve flat unit revenues by the end of the year, the analyst sees the stock trading in the mid-$50s heading into the company's December investor day presentation.

Yates stated that it is "no secret" that

has seen the most "dramatic" de-rating in the sector given its growth plans that failed to impress investors. However, Yates noted "untapped potential" on revenue from ancillary and an uplift from new IT, while network optimization and maturity will drive revenue and cost improvements. In addition, a narrowing of the company's cost advantage forces "more aggressive" revenue management which could help the stock's multiple.

Finally, Yates argued that "limited revenue visibility" discourages the investment case for both

and American Airlines. Spirit Airlines has become a "victim" of American Airlines' more aggressive ULCC (ultra low cast carrier) matching strategy. On the other hand, American Airlines' conference call commentary was "concerning" as it suggested it is the least positioned to achieve positive unit revenues in the second half of 2016 (even with synergies) and will benefit the least in 2016 from fuel savings versus its peers.