Citi lifts price target on airlines, sees boost from premium travel

Investing.com -- U.S. network carriers, including Delta Air Lines Inc (NYSE:DAL ), United Airlines, and American Airlines (NASDAQ:AAL ), are well-positioned to benefit from a structural shift toward premium travel, according to a Citi note on Monday.

The brokerage highlighted the ongoing strength in premium travel demand and revenue from co-branded credit cards and loyalty programs as key advantages for network carriers over their discount counterparts.

Citi said these trends, coupled with higher free cash flow and better earnings quality, are creating a “bigger moat” around network airlines.

While Delta and United remain Citi's top picks, the brokerage raised its ranking for American Airlines, citing its potential to grow premium revenue without needing additional infrastructure investment. Citi noted that American’s year-to-date share price lag does not fully reflect this upside.

Though some gains over discount airlines could be temporary as low-cost carriers adjust capacity, Citi said network carriers’ post-pandemic market share improvements in earnings and revenue appear largely structural.

Airlines across the board, including low-cost carriers like Southwest Airlines (NYSE:LUV ) and Spirit Airlines (OTC:SAVEQ ), are investing in premium travel by adding larger, more comfortable seats to attract customers willing to pay more for enhanced experiences. These efforts are part of an industry-wide push to secure higher-margin revenue streams to counter rising labour and operating costs.

Citi raised Delta Air Lines target price from $65 to $76, while bumps target on American by $3 to $19. Brokerage said it was removing “buy” rated United from its “Focus List.”

Source: Investing.com