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Raymond James analyst Savanthi Syth updated ratings and price targets for a few U.S. airlines and revised the estimates.
The analyst states that the revised U.S. airline estimates reflect a stronger near-term revenue trend, stubbornly higher fuel prices, anticipated demand softening, and planned and expected capacity growth moderation.
Syth says that despite multiple media reports about customers reconsidering travel due to high costs, U.S. airlines still report strong demand and yields even after the summer, albeit in the context of normal seasonality and a tiny sample beyond the summer. She believes part of this resiliency is due to supply lagging demand by a meaningful margin.
While demand remains strong, the analyst notes that some weakness appears inevitable as consumer savings rates normalize from above-normal levels and as a result of the Fed tightening rates, the impact of negative headlines on sentiment, and/or market forces required to address supply chain issues.
According to the analyst, mainline capacity constraints are projected to persist until mid-2023, with regional airline constraints taking 6-12 months longer to address.
Syth states that with considerable adjustments to schedules due to staffing issues, U.S. airline operations are improving, albeit the environment remains challenging.
The analyst lowered the price target to $58 (an upside of 48%) from $75.
Syth remains constructive on ALK, citing its reasonably intact balance sheet and capital structure, but she anticipates that its fleet transition (mainly in 4Q22-1Q23) would create increased cost risk in an already difficult (industry-wide) operating environment.
Price Action: ALK shares are trading lower by 3.37% at $39.01 on the last check Thursday.
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