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Tax Cuts Leave These Airline Winners, Losers; United Lifts Key Outlook

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Southwest Airlines ( LUV ) has a good earnings and balance-sheet profile, but its focus on domestic traffic means Delta Air Lines ( DAL ), United Airlines ( UAL ) and American Airlines ( AAL ) will benefit more from a boost in business travel sparked by tax cuts, analysts said.

[ibd-display-video id=3073039 width=50 float=left autostart=true] Meanwhile, United boosted its outlook for Q4 passenger unit revenue and now sees it coming in about flat from a year ago, driven by stronger yields and better close-in demand. Last month, the carrier predicted it would be down 2% to flat.

Bank of America Merrill Lynch downgraded Southwest to neutral along with Alaska Air ( ALK ), while JetBlue (JBLU) was cut to underperform. American was upgraded to buy; Delta and United were maintained at buy.

"We believe Southwest is the highest quality airline in the group with a very conservative balance sheet and low earnings volatility," BofA Merrill Lynch said. "However, we expect business travel and international markets to outperform Southwest's largely domestic-oriented system in 2018."

Southwest shares closed down 2.5% at 62.38 on the stock market today for a fifth straight decline but still extended from a 59.99 buy point. Delta dipped 0.9% to 54.17, still within range of a 54.16 buy point of a cup-with-handle base. United ended virtually flat but jumped 3% late, and American lost 0.1%.

JetBlue, which on Tuesday also said it would add service between Florida and the Caribbean, rallied 0.9%, and Alaska fell 2%.

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Late Tuesday, United also said December traffic grew 2.7% and capacity increased 3.7%, while load factor declined by 0.8 percentage point to 82.3%.

Earlier in the day, Southwest said it still expects unit revenue to increase 1%-2%. The airline said that passenger traffic in December rose 2.6%, while its flight capacity rose 1.8% and load factor was up 0.7 percentage point to 83.3%.

The monthly traffic figures come as Delta prepares to report fourth-quarter results on Thursday . Delta's financials have kept analysts relatively happy, but Wall Street appears likely to be more focused on cost containment this year after industry expenses rose in 2017.

Southwest, which reports fourth-quarter earnings on Jan. 25, last week said it would give employees a $1,000 cash bonus "to celebrate the recent passage of the tax reform legislation."

The company also said it would exercise an option to order 40 Boeing (BA) 737 MAX 8 aircraft - 15 next year and 25 in 2020. It deferred 23 737 MAX 7 orders. Southwest at the time said its capacity growth plans for 2018 remained unchanged.

American Airlines and JetBlue last week also said they would give their employees $1,000 following the tax cuts, which President Trump signed into law last month.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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