U.S. Airlines Jump Most Since 2014 as Deutsche Bank Says Buy

  • Shares are set to rise after first-half rout, Linenberg says
  • American, United lead index after reporting positive news

U.S. airlines surged by the most since late 2014 after Deutsche Bank AG recommended buying shares in the three largest carriers.

American Airlines Group Inc., Delta Air Lines Inc. and United Continental Holdings Inc. will rebound as they advance “in fits and starts” toward halting a slide in passenger revenue for each seat flown a mile, a key industry benchmark, Michael Linenberg, an analyst at Deutsche Bank, said in a report Tuesday. The industry is poised to benefit from slowing capacity growth, currency shifts and a decent economy, he said.

The stock-market rally is giving investors a boost after a first half in which the Bloomberg U.S. Airlines Index was on track for the biggest annual decline in five years, dragged down by fare weakness, too much capacity and economic uncertainty from the U.K.’s vote to leave the European Union. Carriers could snap back quickly if they show signs of improved earnings, Linenberg said.

“In light of the current valuations, we think downside is limited and that therefore investors can afford to be early given the rapidity in which airline share prices can appreciate once it becomes apparent that trends are indeed getting better,” he wrote, raising his recommendation on the airlines to buy from hold.

Biggest Gains

The U.S. airlines index closed up 6.5 percent, the biggest gain since November 2014. American led the group with an 11 percent jump, followed by United’s 8.8 percent increase.

Both carriers reported positive news in the last 24 hours. United said late Monday that passenger revenue for each seat flown a mile fell no more than 6.75 percent in the second quarter. Earlier it had warned the figure could drop as much as 7.5 percent.

American announced new credit-card marketing deals Tuesday with Citigroup Inc. and Barclays Plc. The new agreements will boost pretax income by $1.55 billion over the next two-and-a-half years, the carrier said.

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