Redburn Says Its Southwest Sell Thesis Has “Played Out.” So Why Does It Still Prefer Delta and United?

UBS raised its price target for Delta Air Lines (DAL) to $105 from $99, maintaining a Buy rating. The firm cites strong demand and pricing power but notes fuel price spikes may cut estimates. This update comes ahead of Q3 results.

American, United, and Southwest Airlines are reducing flight capacity due to a surge in jet fuel costs, which is expected to add $1B to American's Q4 fuel expenses. The airlines are evaluating less profitable routes, potentially leading to fewer flight options and higher fares for travelers. Fuel prices have risen due to geopolitical tensions, with the global average jet fuel price increasing by 7.4% to $194.90/bbl.

Delta Air Lines is investing $2.3 billion to expand its hub at Los Angeles International Airport (LAX), aiming for 200 daily flights to nearly 70 destinations by summer 2027. New routes include Philadelphia and Monterey, with increased frequencies to major cities. The investment focuses on premium facilities, including expanded Sky Clubs and Delta One suites on Airbus A350-900s. LAX is also being positioned as a gateway to Asia and Oceania, with new routes to Hong Kong, Shanghai, and Manila.

Southwest Airlines' CFO confirmed that the airline now collects over $2 billion annually from bag and seat fees, with 60% of passengers paying these extras. Fees include $45 for the first checked bag and $55 for the second, with seat selection adding over $1 billion in annual profit. The airline's revenue per available seat mile (RASM) rose 11.2% in Q1 2026, and corporate bookings are up 30% year-over-year.

Redburn reiterated Buy ratings on Delta (DAL) and United (UAL), upgrading Southwest (LUV) to Neutral, citing strong demand and unit revenue growth. The firm raised jet fuel cost forecasts but expects 2027 earnings to exceed consensus for DAL and UAL, with target prices of $105 and $150, respectively. LUV's target is $40.

Rothschild & Co raised price targets for American Airlines (AAL) to $13.50, Delta Air Lines (DAL) to $105, and lowered United Airlines (UAL) to $150, citing strong domestic revenue trends. The firm expects capacity constraints and premium demand to support unit revenues. The FAA is deploying a new AI-powered air-traffic system, Smart, developed by Air Space Intelligence.