Low Cost Airlines Struggle While Legacy Rivals Soar On Global Travel Rebound

Industry Overview - U.S. airlines are expected to experience a profitability upswing, driven by increasing international demand and wider margins, with a notable divide between legacy carriers and low-cost rivals [1] - JP Morgan analyst Jamie Baker forecasts industry revenue growth of approximately 8% in 2026 and 5.5% in 2027, primarily fueled by international travel and increased aircraft deliveries [2] Margin and Profitability - Operating margins are projected to expand by 2.3 percentage points in 2026, led by American Airlines and Southwest Airlines, with an additional improvement of 1.6 points in 2027 despite ongoing fuel cost concerns [3] Company-Specific Forecasts - United Airlines Holdings has a price forecast set at $149, Alaska Air Group at $96, and Sun Country Airlines Holdings at $23, indicating concentrated industry profits among a few players while low-cost carriers struggle [4] - Alaska Air Group's price forecast was raised from $73 to $96, with management projecting $10 EPS and 11-13% margins by 2027, reflecting its transition into the legacy category [6] - American Airlines' price forecast increased from $17 to $20, with a positive outlook due to deleveraging and limited capital spending, although risks include higher labor costs [7] - Delta Air Lines' price forecast was raised from $72 to $85, supported by strong margins and premium demand, with risks related to fuel volatility and delivery delays [8] Labor Costs and Investment Strategy - Labor costs are noted as a long-term concern, overshadowing domestic capacity growth, while airline stocks exhibit seasonal cycles, historically yielding a 28% average return when bought in September or October and sold in April or May [5]