JP Morgan Calls US Airline Q2 Earnings 'A Mixed Bag,' Upgrades Southwest To Overweight

In a report published Thursday, JP Morgan analyst Jamie Baker said that 2Q earnings by US Airlines offered "a mixed bag" for investors, with signs of "continued supply discipline tempered by the lack of any RASM improvement." Analyst Jamie Baker commented that sentiment seemed to be improving from what was witnessed following "Black Wednesday" and "the resulting dead calm" that was experienced for several weeks in June.In the report JP Morgan noted, "Looking at first-half results, industry capacity rose 3.2% yr/yr – precisely what airlines had been planning as of last Summer before fuel prices collapsed…[The 2Q] earnings season failed to afford any evidence of improving RASM, at least not yet."Baker expects Q3 RASM to decline by around 6 percent, a rate similar to what was witnessed in Q2. "Thankfully, fuel savings appear poised to rescue the difference, contributing to 3Q estimates that – broadly speaking – haven't changed much," the analyst added.JP Morgan upgraded the rating on Southwest Airlines Co (NYSE: LUV) from Neutral to Overweight, while raising the price target from $42.50 to $50. "Southwest shares represent a significant value at the $36 level, in our view," Baker said.Southwest's shares are down 13.5 percent since May 20, as compared to a 1% decline in S&P 500. Baker stated that there were "misplaced concerns" over the company's commitment to capacity discipline, while adding that it was difficult to identify "any significant or lasting excuse for Southwest's year-to-date performance or current (and intriguing, in our view) valuation."Baker maintained Overweight ratings on American Airlines Group Inc (NASDAQ: AAL), Delta Air Lines, Inc. (NYSE: DAL) and United Continental Holdings Inc (NYSE: UAL). Their price targets were reduced from $72.50 to 72, from $63.50 to $63 and from $78.50 to $81, respectively.