By Sam Boughedda
Analyzing airline stocks on Wednesday, a Morgan Stanley analyst said they continue to like the differentiated and unique business models of the Ultra-Low-Cost Carriers, but expect the focus to "shift toward comps and competition into 2H22 as international and corporate travel return."
Despite the return to travel following two years of pandemic restrictions that brought international travel to an almost standstill, airline stocks have struggled in 2022 as staff shortages, and soaring fuel prices continue to impact the industry.
However, Morgan Stanley remains bullish on U.S. airlines overall and resumed coverage of low-cost carrier Frontier Group Holdings Inc (NASDAQ:ULCC) at Overweight in the research note.
"We believe pent-up demand remains strong, travel interest remains resilient despite consumer/macro fears, RASM trends are powerful, cost inflation headwinds are easing with better availability of capacity, and moderating jet fuel," said the analyst, who has a $20 per share price target on Frontier.
"With the SAVE merger pursuit now in the rear-view mirror," Morgan Stanley sees Frontier as the "quintessential" ultra-low-cost carrier due to its "ultra-low fares, ultra-low-cost structure, and attractive (normalized) margins."
Frontier shares rose more than 4% Wednesday.