Deutsche Bank Sees Clear Skies For Airlines In 2015

Deutsche Bank issued an update on the airline industry. Analysts led by Michael Linenberg commented that as “the industry closes its books on a year which is expected to result in a record profit, we see 2015 shaping up to be an even stronger year and believe that airlines will continue to share their growing wealth with their stakeholders.

“Lower fuel prices, reduced interest expense via balance sheet deleveraging and modest non-fuel cost increases are contributors to our 2015 forecast whereas PRASM is expected to be a modest drag.

“Investors may balk at that dynamic initially, but given the potential upside to earnings as well as the industry's stated pro-shareholder intentions, we remain positive on the sector.”

Linenberg raised the “2015 net profit forecast for the industry from $12.4 billion to $16.5 billion predicated on a lower fuel price, lower interest expense and modest non-fuel cost increases. We are projecting a 0.5 percent decline in PRASM entirely due to international markets. Underlying our forecast is a 14.6 percent operating margin and a 13.3 percent pretax margin which are, respectively, 3.7 percentage points and 4.0 points higher than a year ago.”

The firm’s most favored names were:

United Continental Holdings Inc (NYSE: UAL)

Southwest Airlines Co (NYSE: LUV)

Delta Air Lines, Inc. (NYSE: DAL)

American Airlines Group Inc (NASDAQ: AAL)

JetBlue Airways Corporation (NASDAQ: JBLU)