US Airlines Face 'Modestly Favorable' Setup Into Third-Quarter Earnings, UBS Says

Redburn upgraded Southwest Airlines (LUV) to Neutral, raising its price target to $40. The firm cited valuation improvements and stronger-than-expected ancillary revenue growth. Redburn maintains Buy ratings on Delta (DAL) and United (UAL), favoring their international networks and capacity discipline. Institutional interest increased for all three carriers, with Southwest having the highest short interest.

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.

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.

Shares of American Airlines (AAL), United Airlines (UAL), Delta Air Lines (DAL), and Southwest Airlines (LUV) rose 3-4% overnight after a U.S.-Iran peace deal raised hopes for lower fuel costs. Brent crude futures fell 4.6% to $83.3/barrel. Airlines have faced higher fuel expenses, with IATA estimating 2026 costs at $350B. AAL and UAL had cut earnings forecasts due to rising fuel prices.

Shares of Delta Airlines (DAL), Southwest Airlines (LUV), and United Airlines (UAL) rose 3.2%, 4.7%, and 2.8% respectively after LaGuardia Airport reopened following a fatal crash involving an Air Canada flight. Delta reported single-runway operations and FAA ground delay programs. The crash killed two pilots and injured dozens, canceling over 500 flights.