Strong demand boosts profitability! Goldman Sachs Group, Inc. is bullish on the airline stocks overall, only SkyWest, Inc (SKYW.US) has been downgraded.

Goldman Sachs Group, Inc. has raised its outlook for the aviation industry, as despite airlines raising ticket prices to offset rising fuel costs, demand for air travel remains strong and has not been significantly suppressed. Therefore, Goldman Sachs Group, Inc. has increased its net profit forecast for the third and fourth quarters of 2026 for the aviation industry by 24% and 32%, respectively. Analyst Catherine O'Brien of Goldman Sachs Group, Inc. stated in a report sent to clients, "We believe that the industry's rapid actions to control capacity, as well as an improved competitive environment following Spirit Airlines ceasing operations in May, have collectively enhanced revenue trends." O'Brien is particularly optimistic about the growth prospects of Allegiant Travel (ALGT.US) following its merger with Sun Country Airlines, noting that the merged company's "revenue trends have significantly improved." She said, "We expect Allegiant Travel's strong revenue growth trend to continue, benefiting from reduced capacity in the leisure travel market and ongoing synergies from the merger." She reiterated a "buy" rating for Allegiant Travel and raised its target price by 14% to $142. At the same time, O'Brien also raised the target prices for several airlines, including: raising Alaska Air Group, Inc.'s (ALK.US) target price by 19% to $69; raising American Airlines Group Inc.'s (AAL.US) target price by 50% to $15; raising Delta Air Lines, Inc.'s (DAL.US) target price by 45% to $116; raising United Airlines (UAL.US) target price by 24% to $162; and raising the target price for JetBlue Airways Corporation (JBLU.US), which was given a "sell" rating, by 28% to $4.50. The only exception is SkyWest, Inc (SKYW.US). O'Brien downgraded the rating for the stock from "buy" to "neutral" and lowered the target price by 14% to $108, citing increased downside risks to flight hour output. SkyWest, Inc's business primarily relies on long-term capacity purchase agreements with partner airlines, with its business volume typically measured in flight hours. During the first quarter earnings call, company management indicated that flight hour output for this summer is expected to be slightly lower than previous model forecasts. O'Brien pointed out that although fuel prices have fallen significantly from their highs in April, they are still higher than before the outbreak of war. Therefore, she expects that industry capacity growth in the medium term will be lower than previously expected, increasing the downside risk to SkyWest, Inc's flight hour output. O'Brien lowered her 2026 flight hour growth forecast for SkyWest, Inc from the previous 3.5% to 3.0%, compared to her earlier forecast of 4.9% for this year. She stated that this means flight hour growth will experience a "significant slowdown" compared to recent years.