A looming recession, high fuel prices, and labor pressures are “legitimate” risks that U.S. airlines face, but this isn’t 2008.
That’s from analyst Stephen Trent at Citi, who listed two reasons U.S. airlines are better able today to handle challenges brought by an economic slowdown than they were during the 2008 Great Recession and credit crunch.
Trent also listed his preferences within the sector. Delta Air Lines Inc.
is No. 1 on the analyst’s list, followed by also buy-rated United Airlines Holdings Inc.
hold-rated Southwest Airlines Co.
and American Airlines Holdings Group Inc.
rounding out his top 4.
Airfares “remain robust,” Trent said. A COVID-19 transition from pandemic to endemic could continue to boost travel as many people book their first trips in years, the analyst said.
U.S. fares averaged $336 in May, up from $216 in January. Trent said that Citi’s latest survey showed that July domestic fares are up 35% as compared to 2019.
The second reason is that capacity is scarcer, the analyst said. Airline capacity is running below historic trends, with capacity for the year running below the level seen in 2019.
U.S. airlines are unlikely to be recession-proof, but “the market still seems to underappreciate the extent to which the major carriers have de-risked their operations since the credit crunch,” Trent said.
“Although oil prices and labor costs are issues today, one or both of these items could provide some relief, in the event of an economic soft landing next year,” he said.
U.S. airline shares are mirroring the broader equity market’s action on Wednesday.