Goldman Sachs Resumes Airline Coverage

Goldman Sachs resumed coverage of various U.S. airlines in a note on Friday, issuing Buy ratings for:
– Delta Air Lines (NYSE:DAL)
– United Airlines (UAL)
– Alaska Air Group (NYSE:ALK)

The firm assigned Sell ratings to:
– JetBlue Airways (NASDAQ:JBLU)
– Southwest Airlines (NYSE:LUV)

They cited varying outlooks on demand recovery and cost structures across the industry.

Post-Pandemic Challenges

According to Goldman Sachs, the airline industry continues to deal with multiple post-pandemic challenges, including:
– Supply constraints from aircraft delivery delays
– Increased maintenance requirements

Despite these hurdles, off-peak capacity discipline and improving unit revenue trends are predicted to bolster the industry.

Goldman noted, "Off-peak capacity into the fall/winter is now expected to be in line with more normalized pre-pandemic levels and pricing is improving. Capacity discipline and improved unit revenue trends have driven the stocks 76% higher since the August 2024 bottom."

Favorable Outlook for Certain Carriers

The bank pointed out that carriers with significant exposure to premium and corporate demand are likely to outperform. They highlighted a positive outlook for Delta, United, and Alaska Air based on:
– Strong competitive positioning
– Expected normalized margins improvement

Ongoing Supply-Side Constraints

Despite bullish sentiments on select carriers, supply-side constraints remain a significant concern. Goldman predicts that aircraft delivery delays will persist into 2025, with 2024 deliveries expected to fall 42% short of initial projections.

JetBlue, in particular, is facing challenges linked to accelerated maintenance of Pratt & Whitney engines, which are affecting fleet availability and costs.

Labor Landscape and Future Profitability

Goldman Sachs also mentioned the evolving labor landscape, noting that while recent pilot contract deals have led to notable cost increases, most of these pressures are likely past the industry.

They concluded that while the airline sector is still under pressure, opportunities exist for select carriers due to capacity discipline, premium demand, and network adjustments. Long-term profitability improvements are expected, especially for airlines with diverse product offerings and strong margin advantages.