Evercore ISI Names Top Airline Picks as Fuel Volatility Challenges Sector

Analysts at Evercore ISI have released their top airline stock picks ahead of the third-quarter earnings season, highlighting carriers best positioned to manage sustained revenue strength against a backdrop of highly volatile fuel costs.

Demand Strength Meets Fuel Headwinds

The report notes that demand commentary across the airline sector remains broadly constructive, suggesting stable travel trends despite significantly higher year-over-year fares. Evercore ISI's analysis indicates that fall travel on Transatlantic routes appears stronger than the peak summer season.

However, the primary challenge for the industry has been what the firm calls "extreme" fuel volatility. Key figures from the third quarter illustrate this pressure:

• Brent crude prices ranged from a low of $68 to a high of $131 per barrel.
• Gulf Coast jet fuel fluctuated between $2.69 and $4.70 per gallon.

This volatility, particularly the recent run-up in jet fuel prices, may lead to more conservative fourth-quarter estimates, which could ultimately benefit investor expectations, according to the analysts.

A Shift in Profit Share

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Evercore ISI's research points to a significant shift in profitability among the four largest U.S. carriers over the past two years. Delta Air Lines has emerged as a clear leader in this environment.

• Delta's share of the group's combined pre-tax profit has grown from 42% to 51%.
• Southwest's share improved from 6% to 19%, following two years of modest capacity growth.
• American's share declined from 15% to an estimated negative 5%, reflecting an anticipated pre-tax loss.

Top Airline Selections

Based on this analysis, Evercore ISI identified its top picks, emphasizing that carrier behavior is currently a more significant driver of profit share than product offerings.

• Delta Air Lines (DAL): Chosen for its demonstrated growth in profit share.
• United Airlines (UAL): Selected as a top pick for its potential as the sector normalizes.
• Copa Holdings (CPA): An international carrier favored by the analysts.
• Allegiant (ALGT): Rounds out the firm's top selections.

The report also noted that Alaska Airlines (ALK) could offer significant upside if it achieves its earnings per share goals ahead of schedule.