UBS Sees Opportunity In US Airlines During 2017

UBS analyst Darryl Genovesi commented on the US Airline sector Thursday. He highlighted capacity growth during the second half of 2016 was "as expected" and gave the indication 2017 could be an opportunity for investors in the sector.

"Investors have expressed concern about accelerating 2H capacity growth embedded in flight schedules, particularly Q4. However, schedules have been revised lower recently and our analysis suggests that 2H growth should ultimately look quite similar to 1H," according to Genovesi.

"Airlines often over-schedule initially, then revise their schedules down, canceling flights closer in while consolidating passengers onto remaining flights. This practice is most prevalent in the shoulder season; hence the concern around Q4 growth," the UBS analyst said.

Genovesi noted an expected slowdown in 2017 amid fleet constraints at Southwest Airlines Co LUV, and said, "...we think American Airlines Group Inc AAL/Delta Air Lines, Inc. DAL/United Continental Holdings Inc UAL all feel less pressure to grow next year, resulting in a 100-150 bps slowdown in domestic industry supply growth."