Morgan Stanley's Rajeev Lalwani analyzed airline stocks under the context of lower oil prices.
In the firm's Question of the Week, Lalwani asked: "What do you prefer (A) low oil, limited capacity discipline, and higher profits or (B) high oil, increased capacity discipline, and lower profits?" The investors that Morgan Stanley polled "overwhelmingly" supported scenario B, to the tune of 76 percent of respondents.
That response, the note said, did not catch Lalwani by surprise as the group has underperformed year-to-date in the low oil environment. However, unlike investors, Lalwani said that the firm believes that "the group can do well in an environment with low oil and limited discipline, though we need the carriers to restore our confidence."
That discipline is unlikely to come from the smaller carriers, the note suggested.
"We are not surprised to see elevated supply as airlines move to capitalize on the profit opportunity, particularly the smaller carriers," the note said.
However, the firm argued that the legacy carriers can be the ones to demonstrate discipline and balance supply and demand – expecting the Q2 earnings to result in domestic capacity cuts of 1-2 percent for H2.
Oil's decline created an environment where the airlines will "achieve record profitability and return significant capital to shareholders," which Morgan Stanley "finds supportive" of long-term share prices.
Amongst the airlines, JetBlue Airways Corporation JBLU has been the standout, gaining more than 41 percent year-to-date. That performance is even more distinguishing when comparing against its peers – all down around 20 percent on the year. Southwest Airlines Co LUV dipped 20 percent since the start of the year; American Airlines Group Inc AAL lost 22 percent; and Spirit Airlines Incorporated SAVE shed 22 percent.
© 2022 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
Ad Disclosure: The rate information is obtained by Bankrate from the listed institutions. Bankrate cannot guaranty the accuracy or availability of any rates shown above. Institutions may have different rates on their own websites than those posted on Bankrate.com. The listings that appear on this page are from companies from which this website receives compensation, which may impact how, where, and in what order products appear. This table does not include all companies or all available products.
All rates are subject to change without notice and may vary depending on location. These quotes are from banks, thrifts, and credit unions, some of whom have paid for a link to their own Web site where you can find additional information. Those with a paid link are our Advertisers. Those without a paid link are listings we obtain to improve the consumer shopping experience and are not Advertisers. To receive the Bankrate.com rate from an Advertiser, please identify yourself as a Bankrate customer. Bank and thrift deposits are insured by the Federal Deposit Insurance Corp. Credit union deposits are insured by the National Credit Union Administration.
Consumer Satisfaction: Bankrate attempts to verify the accuracy and availability of its Advertisers' terms through its quality assurance process and requires Advertisers to agree to our Terms and Conditions and to adhere to our Quality Control Program. If you believe that you have received an inaccurate quote or are otherwise not satisfied with the services provided to you by the institution you choose, please click here.
Rate collection and criteria: Click here for more information on rate collection and criteria.