Airline ETF Gains Speed on Upbeat Outlook

Further bolstering the airline industry outlook, Bank of America upgraded American Airlines and reiterated its buy rating on Delta and United Continental after analysts argued tax reform will boost business travel, reports Thomas Franck for CNBC.

“We view tax reform as a significant positive for corporate spending (banks, media companies and even airlines have given $1,000 one-time bonuses to employees), and we believe this can drive a pickup in corporate travel pricing,” wrote BofA analyst Andrew Didora.­­ “Since 2014, we estimate corporate pricing is down 14 percent. … This coupled with strong international fundamentals should create a solid backdrop for the legacy airlines that are more levered to corporate travel than domestic, leisure-oriented airlines.”

These airline carriers generate roughly two-thirds of revenue from business travel, and any recovery in corporate pricing as a result of tax reforms could disproportionately benefit those companies.

“In a scenario in which corporate prices returned to the same levels as four years ago, corporate revenues could grow 15 percent, driving a strong fundamental backdrop for the industry and an even better outlook,” Didora added.

For more information on the airline ETF, visit our Airline category.