U.S. Airline Stocks Decline as Jefferies Downgrades Major Carriers

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Samiat

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Nov 12, 2024
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U.S. Airline Stocks Decline as Jefferies Downgrades Major Carriers​

Key Takeaways:​

✅ Jefferies downgraded American Airlines (AAL), Delta Air Lines (DAL), and Southwest (LUV), sending shares lower.
✅ Consumer sentiment remains weak, with analysts citing concerns over tariffs.
✅ Airlines previously cut their Q1 forecasts, and analysts expect further reductions in full-year estimates.
✅ United Airlines (UAL) is the only major U.S. carrier maintaining a “Buy” rating.

Airline Stocks Drop After Jefferies Downgrade​

U.S. airline stocks fell on Tuesday after Jefferies downgraded three of the four major carriers, citing disappointing consumer sentiment and growing economic uncertainty.

  • American Airlines (AAL) and Delta Air Lines (DAL) were downgraded from “Buy” to “Hold,” while
  • Southwest Airlines (LUV) was lowered to “Underperform.”
Following the ratings cuts, shares of American, Delta, and Southwest declined between 3% and 5% in early trading.

Weaker Outlook and Economic Headwinds​

The downgrades come amid ongoing challenges in the airline industry:

✈️ Airlines have already revised their Q1 forecasts downward, citing a weak macroeconomic environment and extreme weather conditions.
Jefferies analysts predict further full-year estimate reductions, with concerns over the impact of new tariffs expected to take effect this week.

United Airlines Stands Alone with a "Buy" Rating​

Unlike its competitors, United Airlines (UAL) retained its “Buy” rating from Jefferies. Analysts noted that United has strong long-term growth potential beyond 2025, maintaining a leading industry strategy.

Despite the positive outlook, United Airlines shares also slipped over 4% on Tuesday, reflecting broader concerns across the airline sector.

Airlines Face Profitability Challenges​

While all four major airlines remain profitable, their business model faces pressure:

In 2024, each airline reported higher costs per available seat mile than revenue per available seat mile, indicating they are losing money on passenger transportation.
Profitability has been boosted by high-margin co-branded credit cards, such as United Airlines' partnership with JPMorgan Chase (JPM).

Market Outlook​

With consumer sentiment remaining weak, rising tariffs, and high operational costs, airline stocks may continue to face turbulence in the coming months. Investors are closely watching economic developments and potential adjustments to full-year airline forecasts.
 
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