Goldman Sachs cuts rankings on American and JetBlue, however says it’s nonetheless ‘optimistic’ on airways

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Goldman Sachs analysts said Wednesday they remain “positively on the road to profitability” for US airlines, but earnings are likely to return more slowly than expected amid rising fuel prices and poorer revenue.

The analysts, led by Catherine O’Brien, scaled back their expectations for the industry in late 2021 and 2022 and downgraded their ratings of the shares of Jet Blue Airways Corp. JBLU, -4.62% and American Airlines Group Inc. AAL, -4.73%.

Goldman downgraded JetBlue stock to the hold from buy equivalent “as we expect the cost headwinds associated with its American partnership to outweigh the revenue benefits in a weaker industry environment,” a reason for a “slower return to profitability.”

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Analysts set a target price of $ 17 for the stock, implying a 5% increase from Wednesday’s prices.

American Airlines stock was downgraded for sale from the equivalent of holding. The stock is expected to underperform as “the company’s relatively higher operating leverage weighs on profitability recovery,” analysts said. They set a price target of $ 18 on the stock, which is about a 16% loss.

The analysts attributed the slower recovery in the broader industry to fewer air travel in some cases.

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That, combined with higher aviation fuel prices and rising spending and costs, led Goldman to reduce its fourth quarter outlook for the industry to an adjusted net loss of $ 1.5 billion, from a previously expected profit of $ 350 million -Dollar.

Goldman analysts forecast an 18% decline in adjusted net income to $ 8.1 billion in 2022.

“While we lower our short-term forecast, we remain positive for the industry despite this pressure,” said the analysts. By 2023, margins in the industry are expected to recover to 2019 levels and improve in 2024 and 2025.

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“We view 2022 as a year of recovery and expect investors to focus on stable earnings in 2023 and beyond,” they said. Goldman retained its buy rating on Alaska Air Group Inc.ALK shares at -2.63%,
SkyWest Inc. SKYW, -3.25%,
Southwest Airlines Co. LUV, -1.56%,
Sun Country Airlines Holdings Inc. SNCY, -1.53%,
and United Airlines Holdings Inc. UAL, -2.91%

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