Risk/reward for airlines ‘still very attractive’ – Morgan Stanley

Morgan Stanley analysts raised the firm’s price targets for Allegiant Travel Company (NASDAQ:) to $120 from $115 and Sun Country Airlines Holdings Inc (NASDAQ:) to $27 from $26, stating that the risk/reward for airlines is “still very attractive.”

As a result, Morgan Stanley expects a good second quarter for U.S. airlines, marking “the first quarter since the pandemic that there will be no asterisks from costs and capacity.”

“While the y/y comp on revenue is admittedly tougher and 2H23 should be even better than 2Q, this quarter should mark the start of normalized earnings power at the U.S. Airlines,” said the analysts.

“With recent updates from , , , as well as the Ultra Low-Cost Carriers and ALK at our Travel and Leisure conference…there is relatively little risk that we get a sudden negative update on the forward booking curve for the summer unless something dramatic happens with the macro/consumer in the next 3 weeks (just like in March),” the analysts added.

The analysts pointed to international travel as the continued bright spot of the current demand environment. They believe that while summer has gotten off to a strong start, the market will look for an update on numbers and progress on Asia.

“Corporate is no doubt more subdued, but post the encouraging results from our own Corporate survey, we will be looking for an update from the Airlines,” said the analysts.