Wolfe Research issued an updated outlook for the airline sector on Wednesday, adjusting near-term and medium-term profit forecasts across major U.S. carriers. The research house raised its second-quarter earnings projections for Southwest Airlines and United Airlines above consensus, while reducing estimates for several other airlines in the wake of Delta Air Lines’ recent results.
The firm said that demand and fare strength carried through the second quarter even as jet fuel costs eased. Delta's recent report, and its guidance pointing to faster revenue growth in the third quarter versus the second quarter, informed Wolfe's view that many carriers could see similar revenue momentum.
Despite that revenue strength, Wolfe trimmed its third-quarter earnings outlook across the group. The firm's Q3 estimates now sit below consensus for all carriers, a revision it attributes to a recent uptick in jet fuel prices linked to renewed tensions with Iran. Wolfe identified Allegiant Travel, Frontier Group Holdings and American Airlines as experiencing the largest downside to consensus for the third quarter.
On the revenue side, Wolfe's assumptions for the third quarter generally outpace consensus, driven by accelerating revenue per available seat mile. The firm highlighted United Airlines, JetBlue Airways and Alaska Air Group as having the greatest revenue upside potential relative to consensus in Q3.
Wolfe noted that industry revenue performance has thus far outstripped earlier expectations even amid rising fuel costs, suggesting that airlines may be less exposed to fuel shocks than previously assumed. Looking further ahead, the firm signaled growing confidence that revenue per available seat mile will remain positive in 2027.
Wolfe's 2027 estimates are most above consensus for United Airlines, Southwest Airlines and Allegiant Travel. The research house envisions 2027 unfolding in two distinct halves - with strongly positive revenue per available seat mile in the first half and negative readings in the second half.
In its updated positioning, Wolfe singled out Allegiant Travel and United Airlines as the most attractive stocks based on the firm's revised 2027 earnings projections.
Context and implications
- Q2: Demand and pricing strong; Q2 earnings lifted for Southwest and United above consensus.
- Q3: Earnings estimates for the sector are below consensus due to a recent jet fuel price spike tied to geopolitical tensions.
- 2027: Wolfe expects positive revenue per available seat mile overall for the year, with notable upside versus consensus for United, Southwest and Allegiant.