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On Monday, Citi reiterated its ’Buy’ rating for the stocks of major US network airlines—United Airlines (NASDAQ:UAL), Delta Air Lines (NYSE:DAL), and American Airlines (NASDAQ:AAL). The endorsement comes amidst a volatile market, with the firm expressing confidence in the fundamental outlook of these airlines. According to InvestingPro data, the airline sector has faced significant pressure, with Southwest Airlines seeing a sharp 23% decline in just the past week.
Citi analysts suggest that despite the current market volatility, which is not expected to set the tone for the rest of the year, the price volatility of US network airline stocks is likely to continue as long as the current conditions persist. The analysts have maintained their estimates but provided a downside sensitivity analysis to help investors gauge the risks associated with the sector.
The analysis by Citi points to a positive fundamental outlook for United, American, and Delta once the current market turmoil settles. In contrast, Southwest Airlines (NYSE:LUV), which holds a ’Sell’ rating from Citi, is viewed as more concerning due to its poor free cash flow (FCF) outlook. InvestingPro data confirms this concern, showing negative free cash flow of $1.62 billion in the last twelve months, despite the company maintaining profitability with a P/E ratio of 33.35x.
Investors are looking ahead to the first-quarter results that will shed light on the airlines’ performance and future prospects. Delta Air Lines is scheduled to report its results on Wednesday morning, April 9, 2025, with United Airlines expected to follow on Tuesday, April 15, 2025, after the market closes. For Southwest Airlines, InvestingPro analysis reveals that 4 analysts have recently revised their earnings expectations downward, though the stock’s RSI suggests it may be oversold. Get access to 10+ additional exclusive ProTips and comprehensive analysis with an InvestingPro subscription. The management commentary from these reports, particularly regarding the demand outlook, will be crucial. Analysts will be attentive to updates on US consumer demand for overseas travel and the impact of tariffs on airline capacity and foreign demand for US flights, which appears to be softening in some regions. Capacity cuts are among the strategies airlines might employ to mitigate potential downside risks in demand.
In other recent news, Southwest Airlines has been the focus of several analyst updates and operational developments. Fitch Ratings maintained Southwest’s ’BBB+’ rating but revised the outlook from Stable to Negative, citing concerns over strategic changes like introducing bag fees and the potential impact on the airline’s competitive position. Despite these concerns, Fitch acknowledges Southwest’s efforts to boost operating profits significantly by the end of 2026. Meanwhile, Citi analyst Stephen Trent (NSE:TREN) raised Southwest’s price target to $30, maintaining a Sell rating, while expressing skepticism about the company’s earnings projections amid ongoing restructuring efforts.
Melius Research upgraded Southwest’s stock from Sell to Hold, increasing the price target to $34, highlighting the company’s progress in addressing past challenges and potential for improved financial performance in 2025. Similarly, UBS analyst Thomas Wadewitz upgraded Southwest from Sell to Neutral, raising the price target to $36, driven by optimism about the company’s strategic changes and expected margin improvements. In operational news, a Southwest flight at Orlando International Airport had to abort takeoff due to runway confusion, prompting an investigation by the FAA. These developments reflect a complex landscape for Southwest as it navigates strategic shifts and industry challenges.
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