Airline Survey Results Are In: Negative EPS Revisions Might Have Bottomed

In the firm's Airline Question of the Week, Morgan Stanley's Rajeev Lalwani asked readers whether negative airline earnings per share revisions have bottomed across the industry. The overwhelming response: Yes, as just 9 percent of respondents said that negative EPS revisions have not bottomed, while 87 percent said that it did.

Lalwani called this response "resounding," noting that it was a "sentiment swing" that came during a time when the industry guided to disappointing unit revenue and trimmed capacity. Lalwani said that the market has caught up with the weaker outlook. As evidence, Lalwani pointed to estimates for passenger revenue per available seat mile (PRASM), which he said "now fairly capture the current heightened competitive environment."

Also helping boost optimism, according to Morgan Stanley, is the more than 25 percent decline in oil over the past three months.

Related Link: Morgan Stanley Is Not Backing Down On Airlines. Should You?

Morgan Stanley, however, is not as optimistic as the survey respondents. Lalwani said that "holding a conservative view on unit revenues is appropriate as we are not entirely convinced that the competitive environment has completely stabilized given that it became heightened in recent months." In order to shift this view, Lalwani indicated that Morgan Stanley would "need to see carriers consistently meet or beat forecasts." Recent data suggests that might be possible, he added.

Airlines stocks have been beaten up in 2015. American Airlines Group Inc (NASDAQ: AAL) has shed 20 percent; Spirit Airlines Incorporated (NASDAQ: SAVE) dipped 19 percent; United Continental Holdings Inc (NYSE: UAL) fell 13.5 percent; and Southwest Airlines Co (NYSE: LUV) dropped 9.4 percent. The S&P 500 is up 1.2 percent year-to-date.