UBS: U.S. Airline Sector Note - Raising Estimates and PTs for Fuel but Domestic Leisure Pricing Softened

UBS: U.S. Airline Sector Note - Revenue Edge: Raising Est. and PTs for fuel but domestic leisure pricing has softened

UBS analyst said, "May is shaping-up to be a very strong revenue month for the airlines and, in general, summer is booking nicely. Although June and July look decent, the average fare for leisure travellers (defined here as tickets booked via online travel agencies) is showing some softening after a great Q1."

"We’ve updated our estimates and, accordingly, our price targets (summarized below) for the dramatic drop in fuel prices. In general, fuel prices are about $0.30 lower per gallon than what we were previously using in our models and that equates to material EPS upside. Since we increased revenue by 50% of the fuel expense increase as fuel prices rose, we likewise t.empered our estimate increases by lowering revenue by 50% of the fuel expense decline.

"Airline stocks tend to move in the direction of forward consensus EPS and right now consensus looks meaningfully too low for many airlines. We remain bullish on the sector."

US airline stocks include: JetBlue (NYSE: JBLU), Delta Air Lines Inc. (NYSE: DAL), AMR Corp (NYSE: AMR), United Continental (NYSE: UAL), US Airways (NYSE: LCC) and Southwest (NYSE: LUV)

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