Southwest Airlines 'Best-Positioned' To Weather Downturn, BofA Says In Upgrade

U.S. airlines may have the liquidity to weather tough times, but the coronavirus pandemic is an extraordinary time that's bringing a massive hit to revenue, according to BofA Securities.

The United, Southwest Analyst

Andrew Didora downgraded United Airlines Holdings Inc UAL from Buy to Neutral and reduced the price target from $66 to $33.

The analyst upgraded Southwest Airlines Co LUV from Neutral to Buy and lowered the price target from $48 to $43. 

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Takeaways On United, Southwest 

The airline industry has seen a severe deterioration in fundamentals and there seems to be no bottom, with cancellations outpacing new bookings, Didora said in a Monday note. (See his track record here.)

Airline revenue could decline by 36% in 2020, an unprecedented hit and “meaningfully worse” than the four quarters following 9/11, when airline revenue declined by 19%, and the financial crisis, when airline revenue was down 17%, the analyst said. 

Booking trends are “very concerning” and estimates have been slashed to losses for the full year for all carriers, he said, adding that he expects dividends to be suspended or cut across all airlines.

Southwest Airlines is “the highest quality airline in the group with a very conservative balance sheet and low earnings volatility," Didora said.

"As such, we believe it is best positioned to weather the current coronavirus outbreak given its significant liquidity and low net leverage entering the year."

United, Southwest Price Action

Southwest shares were trading 3.94% higher at $33.20 at the time of publication Monday, while United shares were trading 4.2% higher at $25.53. 

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