Analyst Sings Airlines' Praises; Downgrades Alaska Air, Upgrades United Continental

With airline stocks up an average of nearly 35 percent in the year to date, an analyst continued to sing their praises Wednesday, suggesting the industry's new-found capital discipline has "far reaching implications for long-term shareholders."

J.P. Morgan's Jamie Baker upgraded United Continental (NYSE: UAL) to Overweight and cut Alaska Airlines to Neutral.

But more broadly, Baker said an industry once known for its fare wars and overcapacity sees its members now "competing with one another in terms of buyback schemes and dividends."

Baker added that "this is a far more profound reality than whether July revenue per available seat mile is three percent or 3.5 percent.

The occasion for Baker's insight was action July 24 by both American Airlines (NYSE: AAL) and United to launch share repurchase programs. American is the nation's largest and United the second-largest airline.

“July 24 was a watershed moment for the industry,” Baker said.

In boosting his rating for United, Baker cited the potential for improving margins and raised his price target to $60.50. from $43.50.

Baker cut his rating on Alaska Airlines, citing competition from Delta Air Lines (NASDAQ: DAL) and a projected decline in earnings.

Alaska traded recently down 2.3 percent at $45.13; United changed hands up three percent at $47.17 a share.

The Dow Jones U.S. Airlines Index (INDEXDJX: DJUSAR) was up one percent at $191.47.

Dow Jones U.S. Airlines Index (INDEXDJX:DJUSAR)