The Airline Sector: American, United Have Earned An Upgrade, Bernstein Says

Expansion plans and sector-wide upside drivers give United Continental Holdings Inc UAL a strong market position while American Airlines Group Inc AAL remains competitive despite United’s growing market share, according to Bernstein. 

The Analyst

Analyst David Vernon upgraded American Airlines from Market Perform to Outperform with a $62 price target and upgraded United Airlines from Market Perform to Outperform with an $81 price target. 

The Thesis

United’s plans to expand capacity came out much higher than the market expected, as company is aiming for 4-6 percent ASM growth through the next three years, Vernon said. (See the analyst's track record here.) 

This expansion represents an opportunity for United to take market share from other airline companies, worrying some airline investors, the analyst said. 

Other potential upside factors include a significant uptick in the economy, favorable changes in government regulation and lower volatility in fuel prices, Vernon said.

For American Airlines, the market has overstated the effects of United’s expansion plans on the sector, the analyst said. American stands to benefit from strong demand for air travel, cost reduction opportunities and better-than-expected execution on branded fares, Vernon said. 

Price Action

At the time of publication, shares of United Airlines were trading up 0.90 percent at $67.61, while shares of American Airlines traded up 3.27 percent at $54.31. 

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