JPMorgan Projects 50%-Plus Airline Revenue Decline In 2021

JPMorgan is cautious on the airline industry and reducing its forecasts on the basis of conservative demand. 

The Airline Analyst: Jamie Baker upgraded JetBlue Airways JBLU from Underweight to Overweight with a $17 price target. 

Baker upgrades United Airlines UAL from Neutral to Overweight and raised the price target from $44 to $52. 

Baker downgraded Southwest Airlines LUV from Neutral to Underweight and added a $41 price target. 

Baker upgraded Spirit Airlines SAVE from Underweight to Neutral and raised the price target from $14 to $19. 

Baker remains Overweight on Alaska Air Group ALK and Delta Air Lines DAL. Baker is Underweight on American Airlines Group AAL.

The Airline Takeaways: The airline industry's recovery year will be 2022, Baker said in a Wednesday note. 

“We believe certain managements may walk back their cash burn targets given current demand trends, a slower pace of advanced bookings, and higher expenses associated with negotiated alternatives to furloughs,” the analyst said. 

The big three airlines will likely see revenue decline more than 50% in 2021 vs. 2019, compared to an earlier forecast of 25% and a analyst consenus estimate of a 35% decline, he said.

Baker is modeling 2021 as a challenging year and said demand is unlikely to rise above 50% until the second half of 2021 at the earliest. 

The risk-reward is favorable for JetBlue at its current valuation, the analyst said.

“We continue to believe that the company’s cost control will continue to be in focus following [the] impact of COVID-19.”

Despite downgrading Southwest Airlines, Baker said he remains “part of the fundamental bull chorus” for the airline. 

“Southwest remains the airline we can most easily envision emerging from the crisis better positioned than it went in,” the analyst said. 

Southwest is likely to see an earlier return to dividends and share repurchases than other airlines due to passing on government loans, he said. 

“We continue to view Delta as the industry leader,” Baker said.

Delta has the highest margins among legacy airlines, the analyst said. 

The company’s innovation, management team and balance sheet are positives, he said. 

What’s Next: Baker said on CNBC Wednesday that the price targets and ratings assume the airline industry will not receive any relief.

Airline Price Action: Most airline stocks were trading higher Wednesday on the possibility of relief funds.

JetBlue shares were up 5.39% at $12.13. Southwest Airlines shares

were trading 2.16% higher to $38.39. 

Delta Air Lines shares were trading 2.62% higher to $31.86. 

The US Global Jets ETF JETS was trading up 2.04% to $17.52.