Bullish indicating open at $55-$60, IPO prices at $37
Investing.com -- In a note to clients on Tuesday, analysts at UBS questioned whether airlines are primed for another rally in the second half of the year.
However, UBS says investors hoping for another strong second-half rally in U.S. airline stocks, similar to 2024’s surge, should temper expectations.
“It’s possible, but not very likely,” the bank wrote in a note following Delta Air Lines’ upbeat full-year outlook, which temporarily lifted the sector earlier this month.
UBS highlighted that several conditions that supported last year’s rally, like steeply discounted valuations and falling fuel costs, are no longer in place.
“Valuations are more demanding,” analysts said, adding that “industry demand is an unknown and several airlines will be lapping tough compares from 4Q’24.”
Supply discipline is seen as a bright spot. UBS noted that domestic available seat mile (ASM) growth has slowed, with 3Q ASMs currently flat year-on-year and seat counts down 0.2%.
“Supply cuts are again in place in 2H’25 and should be supportive for the industry,” they wrote.
Still, demand remains subdued. UBS estimates just 1.2% revenue growth in 3Q and 1.4% in 4Q, a slowdown from the 4.3% growth seen in 4Q’24.
“There needs to be upside to our estimates for there to be a significant rally in airline stocks,” the analysts warned.
With average sector valuations rising from 6.5x last year to ~10x now, “the bar is higher for airline stocks to move up from current levels.” UBS sees a better setup in 1H’26, assuming continued supply discipline and potential consumer stimulus from the “big, beautiful bill.”
For now, UBS favors Delta and United as “the best way to play the sector.”
But they caution that near-term upside is limited: “We would advise patience and a selective approach to investing in the space.”