Bank of America: Industry demand is weak but a rebound is anticipated, maintaining the "buy" rating on United Airlines (UAL.US).
1min read Bank of America released a research report stating that despite the recent negative factors affecting the airline industry, the demand for air travel is expected to rebound as macroeconomic uncertainties improve.
The bank said that the airline industry's demand was weak due to macro uncertainties, and several US airlines have lowered their revenue expectations for the first quarter of 2025.
Among them, delta air lines (DAL.US) made the largest cut of 450 basis points, followed by american airlines (AAL.US) with a cut of 400 basis points. southwest airlines (LUV.US) cut by 200-300 basis points, and jetblue airways (JBLU.US) cut by 100 basis points. According to airline comments, demand was weak in February and still bottomed out in March.
However, bank of america remains cautiously optimistic about the industry and maintains "buy" ratings on Delta Air Lines, United Airlines (UAL.US) and others.
Looking at individual companies, United Airlines did not provide revenue guidance, and is expected to be at the lower end of its guidance range of $0.75-$1.00 per share for the first quarter of 2025. Bank of America cut its revenue growth expectation for Q1 from 9.3% to 7.5%, and its EPS expectation from $1.00 to $0.76; its full-year EPS expectation from $13.35 to $12.87.
Based on the revised expectations and slightly lower valuation due to slower revenue growth, Bank of America cut its target price for United Airlines from $125 to $110.
For American Airlines, Bank of America said that the revenue guidance cut was better than its expectations due to the impact of the AA5342 flight accident. It cut its EPS expectation for 2025 from $2.60 to $2.30, and its target price from $20 to $16, while maintaining a "neutral" rating.
Bank of America maintained its target price of $5.25 for Jetblue Airways, with a "underperform" rating, considering the company's debt situation and high valuation. However, the bank said that Jetblue Airways' maintenance of its EPS expectations for the first quarter and full year of 2025 above its expectations was a positive signal, as the company has been adjusting its route network to boost profits and has already seen some success.
Bank of America cut its revenue growth expectation for Southwest Airlines from 3.3% to 1.0% for the first quarter, but maintained its EPS expectation of -$0.18 unchanged. The bank noted that Southwest Airlines announced it would start charging for checked luggage, abandoned its long-standing fuel hedging strategy, and aggressively updated its profit targets (EBIT of $1.7 billion in 2025 and $3.8 billion in 2026), but the market still has doubts about these targets, so it maintained its "underperform" rating and $31 target price.
