Cowen Met With Southwest And American Airlines Management; Prefer This Stock

• Southwest Airlines Co LUV shares are up 9 percent year-to-date, while shares of American Airlines Group Inc AAL are down 22 percent over the same period.
• Cowen & Co’s Helane Becker maintained an Outperform rating on Southwest and a Market Perform rating on American Airlines, with price targets at $50 and $45, respectively.
• While Southwest is poised to grow in other markets, American Airlines is focusing on increasing product offerings and improving operations, Becker said.

Southwest Remains A Top Pick

Analyst Helane Becker mentioned that Southwest had completed one year of the Wright Amendment expiry and seemed poised to grow in other markets. The analyst believes that Southwest has significant opportunities for growth over the next decade, as it grows in international markets.

Through 2014, the company added more than 60 daily departures from Dallas Love Field, growing from 114 to 180. “Southwest is operating from Dallas with load factors that exceed the company's system average. The expansion has been quite successful, and given that the airline is not adding any additional flights from the airport, we expect that over the next year air fares will trend higher,” Becker wrote.

American Airlines: Focusing On The Next Opportunities

Becker said that there were concerns around ongoing issues in Brazil and Venezuela, although 2016 may be a slight improvement over 2015. Several of American Airlines’ competitors are reducing capacity in Brazil, which should help.

She added, however, that Brazil is likely to face issues for a while, “given its dependence on commodities and the recent devaluation of the currency, which makes everything more expensive in dollar terms.”

While Brazilians may not be traveling right now, Americans continue to travel to Brazil. Venezuela has shown no signs of improvement, and is unlikely to do so, “so management only sells tickets in USD and does not necessarily expect to get its trapped cash out of the country any time soon,” Becker commented.

Management is now focusing on other opportunities for the company, which include increasing product offerings and improving operations.