Investment bank Dahlman Rose is "bullish" about the prospects of the US airline industry in 2013.
The firm anticipates that a 1% to 2% increase in traffic and a 2% to 4% increase in unit revenues will benefit the entire industry, according to a report today.
"We are upgrading our view of the airline industry to a bullish one from a cautious one," says Helane Becker, airline analyst and a director at Dahlman Rose, in the report. "We believe the year is ending on a fairly strong note, with November the worst month of the current quarter."
Delta Air Lines is the bank's top pick for 2013. It cites the Atlanta-based carrier's focus on paying down debt, various strategic investments including those in Virgin Atlantic Airways and the Trainer oil refinery, and build up in New York as rationale for the selection.
"Delta is well positioned to benefit from higher passenger revenue, higher ancillary revenue, and lower fuel costs in 2013," writes Becker.
Dahlman Rose also cites improving forecasts for Alaska Airlines, Allegiant Air, JetBlue Airways, Southwest Airlines, United Airlines and US Airways.
Becker noted that United, which has had a difficult year from an operational perspective, is set to perform better in 2013. "When United merged its operations with Continental, the wings fell off the aircraft and the company sunk, delivering a disappointing product to its consumers (especially to those in San Francisco and in New York/Newark). We believe the airline turned the corner sometime during the past four months, and this should make for easier year-on-year comparisons in 2013."
Dahlman Rose does not include any impact from the fiscal budget cliff that the USA faces at the end of 2012 in its estimates. It anticipates that the US government will "get its house in order" with little long-term impact on the airline industry, in the report.