Evercore ISI Names Top Airline Stocks Amid Fuel Volatility and Strong Demand

Analysts at Evercore ISI have highlighted their top airline stock picks as the industry contends with strong unit revenues offset by significant fuel price volatility heading into the third-quarter earnings season.

Navigating a Mixed Environment

According to the investment firm, overall demand commentary for the airline sector remains optimistic, indicating stable market trends despite higher year-over-year ticket prices. Transatlantic travel demand for the fall appears to be stronger than it was during the peak summer season.

Looking ahead to the fourth quarter, analysts noted a potentially favorable year-over-year comparison. A government shutdown in the prior year forced a significant number of flight cancellations, creating a lower base for performance metrics.

Fuel Volatility and Shifting Profit Shares

Fuel costs have been exceptionally volatile. During the third quarter, Brent crude oil prices fluctuated between $68 and $131 per barrel, while Gulf Coast jet fuel prices swung between $2.69 and $4.70 per gallon. Evercore ISI suggests this extreme volatility may lead to conservative guidance for the fourth quarter.

An analysis of pre-tax profit distribution among the four largest U.S. carriers over the past two years shows a significant shift:

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• Delta Air Lines' share of the profit pool increased from 42% to 51%.
• Southwest Airlines' share grew from 6% to 19%, following two years of capacity growth below the rate of GDP.
• American Airlines' share declined from 15% to a projected negative 5%, suggesting a potential small pre-tax loss for the year.

Evercore's Top Picks

As the industry normalizes, Evercore ISI identified several preferred stocks based on their strategic positioning and performance:

• Delta Air Lines (DAL): Favored for demonstrating the strongest growth in profit share among major U.S. carriers.
• United Airlines (UAL): Selected as a top pick for its alignment with the industry's ongoing normalization.
• Copa Holdings (CPA): Highlighted for its medium-to-long-term prospects beyond near-term market fluctuations.
• Allegiant Travel (ALGT): Also included in the firm's list of top picks.

Analysts also noted potential upside for Alaska Airlines (ALK) if the carrier can achieve its goal of $10 in earnings per share ahead of its 2027 target. The firm concluded that differences in profit share among airlines are now driven more by operational execution than by the product itself.