US airline fundamentals “strengthening”: JP Morgan

Washington DC
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The financial fundamentals of US airlines are improving as unit revenue numbers climb and fuel prices fall, according to a new report by JP Morgan.

“If not for the merger-related turbulence and continued Syrian uncertainty, we can’t find much to complain loudly about,” says the bank in the report on 17 September.

Passenger unit revenue rose 3% at American Airlines, 4% at Delta Air Lines, 3% at JetBlue Airways, about 4% at Southwest Airlines, 3.5% to 4.5% at United Airlines and about 5% at US Airways during August compared to a year earlier.

The cost of jet fuel fell to just under $3.00 per gallon by the week of 8 September from a second half peak of nearly $3.15 per gallon during the week of 21 August, according to Airlines for America.

JP Morgan also upgraded its outlook for both Delta and US Airways. It anticipates benefits for Delta from either an American-US Airways merger or no merger scenario, and also expects it to raise its margin guidance for the third quarter.

US Airways was upgraded as JP Morgan sees its “stand-alone prospects are materially better than implied by the market”, according to the report. While the carrier has not mapped a “plan B” in the event of no merger, it continues to be profitable and could form a close domestic codeshare with American that would not require US Department of Justice (DOJ) approval.

JP Morgan maintains its expectations that there is a 50-50 chance of the American-US Airways merger occurring.