JPMorgan upgrades American Airlines, downgrades Southwest Airlines amid travel demands

The Yahoo Finance Live team discusses JPMorgan upgrading American Airlines to Overweight from Neutral and downgrading Southwest stock to Neutral, indicating a preference for big-name carriers.

Video transcript

- We want to stick with the airlines here because airline stocks are on a bit of a move here. There was a new note out from JPMorgan Chase. Now, the banking giant turning bullish on American Airlines, upgrading the airline to overweight from neutral while raising its price target to 29 bucks from $26 a share. Now saying in this note, quote, "it's now the larger airlines that control the high ground."

And Akiko, when we take a look at American specifically and what JPMorgan liked about American, they mentioned the revenue guides, the margin improvement, the fact that the company posted a $10 million profit last quarter. Revenue was up 37%. A lot of that strength, Akiko, coming from the demand to travel internationally as we do see more and more COVID restrictions lifted worldwide. People are back out. They want to travel international. And we're seeing that reflected not only in American's plans, but from a number of its competitors as well.

- Yeah. I mean, when you think about where JPMorgan is coming in overweight, they were already overweight the other carriers. So American Airlines just joining the pack here. But really is about the domestic versus international. Obviously, the discount carriers don't have that. So we are seeing that dynamics shift in a big way.

You talk about the debt picture for American Airlines. Significant improvement on that front. 60% on their way to completing its goal of cutting debt by $15 billion by the end of 2025. JPMorgan saying in this note that, yes, that's a good thing. It doesn't mean that things are fixed. But they are on track here at a quicker rate in terms of addressing that debt.

- Yeah. Certainly. And we can see, obviously, JP Morgan, they're not alone in the optimistic view that they have for a number of the larger carriers here in the US. But, Akiko, also on this note, JP Morgan didn't really have the same rosy picture, or outlook, I should say, for some of those discount airlines, particularly you're looking at Southwest. They downgraded that stock to neutral from overweight. Also reduced their price target to 39 bucks a share from 64. Southwest shares hovering near the flatline. Less than an hour here to go before the bell. Off just about 2/10 of a percent. They also downgraded Frontier as well, just saying that the path forward here is a little bit less clear for some of those discount airlines.

- Yeah. I mean, Southwest, of course, coming off of a bumpy-- no pun intended really here, but a bumpy ride for that airline when we're talking about delays and challenges with travelers. So that's already, in some ways, we've already seen that weigh on the stock. But when you think about how things are shaping up for the summer, Seana, we keep hearing that there is really this demand, that consumers are still willing to shell out money for that big summer travel. It's going to be interesting to me to watch.

I mean, we're obviously seeing where the note is saying that they think international demand is continuing to stay strong. I mean, those tickets, I don't know if you've been searching, but they are not cheap. I'd be curious to see how much, to what extent that demand continues, especially in the face of inflation.

- Yeah, Akiko. I'm so happy you brought that up because it has certainly been astonishing. We're talking about the fact that Americans are facing higher prices in nearly every aspect on their lives. They're pulling back in many situations on their discretionary spending. When you take a look at airfares, they're up, what, about 30% still on a year over year basis. Those international flights are very, very expensive. So I would not be shocked if some people are forced to, unfortunately, maybe change their travel plans over the coming months, given the fact that inflation remains so sticky.