Increase in profitability in the airline sector: Susquehanna raises valuations for American Airlines and Sun Country

Optimistic Valuation Transformations for Carriers

Analyst from Susquehanna, Christopher N. Stathoulopoulos, published a review report on the air transportation sector, raising the rating for both American Airlines Group Inc. (AAL) and Sun Country Airlines Holdings Inc. (SNCY) to Positive. Redesigned target prices now stand at $20 per share for both companies, representing a significant increase from previous valuations of $14 and $12 respectively. This change reflects growing confidence in the sector’s potential in the coming years.

Drivers of Industry Recovery to 2026-2027

The report identifies several catalysts supporting revenue expansion in the industry. The demand wave is expected to be driven by: recovery after recent challenges such as the federal government shutdown, lifting of scheduling restrictions imposed by the FAA, international sporting and political events (Americas250, FIFA World Cup, Winter Olympics), year-over-year comparison flexibility, and anticipated economic stimuli supporting business and premium travel.

Stathoulopoulos emphasizes that a key element of this scenario is disciplined supply management among carriers. Forecasts suggest only moderate growth in available seat miles (ASM), which should support healthy unit revenues and prevent oversupply in the market. The sector is preparing for a transformation where cautious capacity management combines with growth in premium services.

American Airlines: Aggressive Premium Strategy as a Key to Margin Growth

The upgrade of American Airlines from Neutral to Positive is justified by an ambitious expansion plan in the premium services segment. The airline intends to close the gap with competitors like Delta and United through significant investments in comfort and innovation.

The plan includes increasing premium seats by about 30% and lie-flat seats by 50% by 2030, supported by the introduction of modern Boeing 787-9P and Airbus A321XLR aircraft. Infrastructure upgrades include opening a new Flagship and Admirals Club in Philadelphia (May 2025), a new grab-and-go concept in Charlotte, and additional Flagship lounges in Miami and Charlotte.

Technology and connectivity are another pillar of the strategy. Starting January 2026, American Airlines will offer free high-speed Wi-Fi for AAdvantage loyalty program members across its narrow-body and regional fleet. The airline is also implementing new amenities, enhanced dining options on international routes, and expanded entertainment offerings.

A partnership with Citibank regarding a co-branded new credit card (launching in January 2026) is expected to generate a 10% annual growth in partner deposits, translating into an additional $1.5 billion in EBIT by 2030. Network expansion, especially the development of the Dallas-Fort Worth hub from nine to thirteen gates, should complement these initiatives.

Financial forecasts for American Airlines project an adjusted EPS of $1.75 in 2026 and $2.50 in 2027. The baseline scenario for 2027 anticipates a 4% increase in ASM, a 3% increase in total revenue per available mile (TRASM), and a 2.5% increase in cost per mile excluding fuel (CASM-Ex). Adjusted EBITDAR is estimated at $6.86 billion with a target debt ratio of 5x. The new valuation of $20 implies a 25% growth potential with a price-to-earnings ratio of 8x.

Sun Country: Hybrid Model and Cash Flows as Competitive Strength

Sun Country’s upgrade results from the flexibility of its low-cost model and its ability to generate profits during various phases of the economic cycle. An agreement with Amazon covering freight and charters provides a stable income cushion, while scheduled service will be restored after fleet deployment.

A long-term, low-capital capacity purchase agreement with Amazon ensures revenue predictability, and stable charter income from multi-year contracts minimizes risk. The lack of significant capital expenditures on the fleet until 2027 suggests Sun Country will generate substantial free cash flows. FCF per share in 2027 is estimated at around $4.95, representing approximately a 20% return.

Financial forecasts for SNCY assume an adjusted EPS of $1.50 in 2026 and $2.10 in 2027. The new target price of $20 implies a potential 31% increase over the current valuation.

Broad Industry Growth Consensus

Stathoulopoulos raised target prices for the entire sector, updating valuations to forecasts for 2027. The aviation sector is expected to see an EPS growth of about 25% across the group. The analyst favors carriers with a clear focus on premium services and exceptional growth opportunities, such as American Airlines and Sun Country, amid disciplined capacity management and a recovering demand environment.