Raymond James Analyst Outlines Important Trends In US Airlines; International Capacity Restoration Regains Strength

  • Raymond James analyst Savanthi Syth has listed the updates on the U.S. airlines.
  • The analyst said in a survey conducted by Raymond James with about 100 investors, 56% said they expect to travel more for business trips in 2023.
  • Syth said United Airlines Holdings Inc UAL, as anticipated, announced an order for 100 Boeing Company BA 787s plus 100 options, with deliveries in 2024-32 to replace the aging 767 and 777 fleets.
  • RelatedUnited Airlines, Boeing Finally Strike Largest Widebody Planes Order
  • Also, consistent with the United Next plans (June 2021), United firmed 44 737 MAX options for delivery in 2024-26, with 56 options added for 2027-28.
  • In turn, United revised the 2023/24 capex guide to $9 billion/$11 billion.
  • In its investor day, Southwest Airlines Co LUV noted that of the 15% y/y 2023 capacity growth plan, 74% of growth by Summer 2023 will be from building back frequency in existing markets.
  • Investor concern is heightened over U.S. airlines’ 2023 capacity growth plans, particularly that of Southwest’s planned 15% y/y provided at the recent investor day, said the analyst.
  • The markets where the analyst expects Southwest’s frequency restoration to be concentrated overlap with that of Frontier Group Holdings Inc ULCCSpirit Airlines, Inc SAVE, and to a lesser extent Delta Air Lines, Inc. DAL 3Q22 seats at 18%, 15%, and 11%, respectively.
  • The analyst said American Airlines Group Inc AAL is dropping Mesa Air Group Inc MESA, with the final flight on April 3 and citing concerns about its partner’s financial and operational problems.
  • Also ReadMesa Air To End Regional Flights For American Airlines, Finalizing New Deal With United
  • The analyst noted that all third-party regionals are struggling, albeit with stronger balance sheets at some.
  • The exit of the American contract is not a surprise to the analyst. Given the belief that American is not agreeing to absorb the higher pilot wage rates, the analyst views a faster unwind as a net positive.
  • A plateau in corporate demand since September is consistent with recent industry commentary, albeit with Alaska Air Group Inc ALK noting a slowdown in corporate demand recently, which Delta contends was expected due to the extra week between Thanksgiving and the December holidays.
  • International capacity restoration is regaining strength as travel restrictions continue to lift, said the analyst.
  • The analyst added that capacity from parts of Asia, including Japan and S. Korea, is showing improvement in 4Q22 and into 1Q23 amidst reopening, although China remains constrained by draconian restrictions.
  • Price Action: UAL shares are trading lower by 0.94% at $38.07 on the last check Monday.
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