Raymond James cuts airline estimates on higher fuel, upgrades Allegiant

Investing.com -- Raymond James lowered estimates across its airline coverage universe, citing a higher jet fuel price forecast, while upgrading Allegiant Travel to Strong Buy from Outperform. The carrier’s shares rose more than 2% in premarket trading.

The broker raised its jet fuel price forecast for the second half of 2026, 2027 and 2028 by roughly 18%, 14% and 7%, respectively. The increase was partly offset at non-U.S. carriers by a somewhat weaker U.S. dollar against local currencies.

Gulf Coast jet fuel prices have risen 39% quarter-to-date through August 19, outpacing gains of 26% and 21% in Brent and WTI crude, respectively.

Raymond James analyst Savanthi Syth said the higher fuel forecast primarily reflects elevated refining margin assumptions rather than crude prices, with the firm’s Brent forecast revised just 5%, 1% and 0% over the same periods. Refining margin estimates were revised sharply higher across 2026-2028.

For Allegiant, Syth pointed to a "greater quarter-to-date pullback in shares" despite a constructive backdrop excluding fuel, including "idiosyncratic margin recovery levers, flexible capacity model, and now-enhanced scale following the Sun Country acquisition."

U.S. TSA throughput has run about 2.6% lower year-over-year quarter-to-date versus a 1.1% decline in scheduled seats, a gap Raymond James attributed partly to airlines optimizing for yield and partly to higher cancellations tied to unfavorable Northeast weather.

Raymond James raised its fourth-quarter U.S. domestic capacity growth forecast to 2.3% from 1.5% in early August, reflecting elevated growth expectations at American and United.

U.S. demand trends "remain constructive, with no meaningful signs of elasticity despite higher fares," Syth said, and noted encouraging early indications for post-Labor Day travel demand.

In Europe, second-quarter results were mixed versus expectations, with intra-Europe fares disappointing amid elevated capacity growth. Intra-Europe seat capacity is up about 5% year-over-year over the summer, compared with roughly flat domestic U.S. seats.

Syth expects a favorable supply inflection heading into winter as fuel-hedge rolloffs and earnings pressure prompt capacity discipline at Ryanair, easyJet, AF-KLM, IAG and Lufthansa. Wizz Air’s capacity growth is moderating but isn’t expected to become meaningful until after the winter season.

In Latin America, demand remains strong, with Copa noting Brazil-North America routes performing somewhat better than the rest of its network. Elsewhere, Air Canada said demand remains constructive into the second half of the year, with corporate and premium trends strengthening beyond the July-August leisure peak.

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