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Investing.com -- Evercore ISI raised its ratings on Allegiant Travel (NASDAQ:ALGT) and SkyWest (NASDAQ:SKYW) driven by improving fundamentals and catalysts even as it adjusted earnings estimates across the airline sector to account for slightly higher fuel prices.
The brokerage said it expects domestic capacity growth to slow notably after the summer peak, helping bring supply more in line with demand.
U.S. airline seat capacity is now projected to fall 1% year-over-year by August, down from low single-digit growth earlier, according to Evercore.
Demand commentary from carriers has stabilized after a slower start to the second quarter, with booking windows remaining short and sensitive to geopolitical headlines.
However, the firm noted "some pockets of improvement" in close-in bookings since Memorial Day, suggesting possible yield gains into summer if macro conditions remain steady.
Allegiant was upgraded after years on the sidelines, with Evercore pointing to year-to-date underperformance and an expected hotel asset sale this summer as a potential catalyst.
SkyWest’s upgrade was driven by greater confidence in its earnings outlook and what analysts described as a valuation discount.
Ryanair, Copa Holdings (NYSE:CPA), and SkyWest have led sector performance in the second quarter, while JetBlue, Frontier, and Volaris have lagged.
Evercore said it is most optimistic on 2026 earnings prospects for Southwest and Allegiant, and sees downside risk to estimates for JetBlue and Alaska Air (NYSE:ALK).
Its top sector picks remain Copa, Sun Country, and Delta.