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US Airlines Seen Setting Q3 Profit Guidance Above Consensus, UBS Says

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US Airlines Seen Setting Q3 Profit Guidance Above Consensus, UBS Says

US airlines are expected to issue above-consensus earnings guidance for the third quarter, while second-quarter profit likely met expectations, UBS Securities said Tuesday in a report.

Jet fuel prices have fallen about 30% in the past month, and travel demand has stayed firm even as fares rose, the report said. Fuel costs had surged on Middle East supply disruptions, and prices have since eased after the US-Iran agreement to halt fighting and reopen the Strait of Hormuz.

With fuel pressure easing from a year earlier and fares higher than in the second quarter, UBS expects revenue growth to accelerate in the third quarter.

While there are some unit-cost headwinds for certain carriers, "the positive revenue and fuel dynamics are driving the expected EPS upside" for the third quarter," the report said.

UBS projects low-double-digit to mid-teens revenue growth for major US airlines in the second quarter, with broadly in-line earnings.

Demand remained solid through the quarter, consistent with company outlooks, and jet fuel generally tracked guidance assumptions, the report said.

UBS named American Airlines Group (AAL) and United Airlines Holdings (UAL) as its top picks ahead of second-quarter results. American's profitability is highly sensitive to fuel prices and should benefit from strong industry demand, while United has "meaningful earnings upside" from revenue momentum and lower fuel costs, with room for full-year guidance to move higher, the report said.

UBS reiterated its buy ratings on Delta Air Lines (DAL), Southwest Airlines (LUV) and Alaska Air Group (ALK).

Price: $16.13, Change: $+0.05, Percent Change: +0.31%

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