Susquehanna raises ratings for American Airlines and Sun Country based on anticipated rebound in demand

Susquehanna Upgrades American Airlines and Sun Country: Positive Outlook for Airline Sector

Susquehanna analyst Christopher N. Stathoulopoulos has issued an optimistic report ahead of the fourth quarter earnings season, upgrading both American Airlines Group Inc. (AAL) and Sun Country Airlines Holdings Inc. (SNCY) to Positive. The analyst cited a constructive industry environment and specific company drivers as reasons for the upgrades, raising the price targets for both AAL and SNCY to $20 per share, up from $14 and $12 respectively.

The airline industry is preparing for a resurgence in passenger demand, with careful capacity management and a strategic shift toward premium services expected to boost profitability through 2027. Stathoulopoulos, a seasoned industry expert, highlighted that these trends create a strong foundation for select airlines, especially those expanding premium offerings and diversifying their revenue sources.

According to the report, the broader airline sector is set for a significant recovery by 2026. Several factors are expected to fuel this growth, including a rebound after the recent U.S. government shutdown and FAA-imposed schedule cuts, major upcoming events such as Americas250, U.S. midterm elections, the FIFA World Cup, and the Olympic Winter Games, as well as easier year-over-year comparisons following past economic and geopolitical challenges. Additional drivers include possible economic stimulus, stricter office attendance policies encouraging more business travel, and sustained demand for premium travel experiences.

Stathoulopoulos also emphasized the importance of supply discipline among U.S. airlines, with available seat miles (ASMs) projected to increase only modestly. This measured growth is expected to help maintain healthy unit revenues and prevent market oversupply.

American Airlines: Focus on Premium and Technology

The upgrade for American Airlines from Neutral to Positive is attributed to its aggressive expansion into premium services, a move expected to help close the margin gap with competitors like Delta and United. The airline is investing in technology and merchandising, aiming to boost its premium seat inventory by roughly 30% and its lie-flat seat count by 50% by 2030, supported by new Boeing 787-9P and Airbus A321XLR aircraft. Lounge enhancements are also underway, including a new Flagship and Admirals Club in Philadelphia (opening May 2025), a grab-and-go concept in Charlotte, and additional Flagship lounges in Miami and Charlotte.

To further improve the customer experience, American Airlines will introduce complimentary high-speed Wi-Fi for AAdvantage loyalty members across its entire narrowbody and dual-class regional fleet starting January 2026. The airline is also rolling out new amenity kits and curated food and beverage options on select international and transcontinental flights, reinforcing its commitment to premium service. Free Wi-Fi, in-seat power, entertainment, and upgraded food and beverage are positioned as key elements driving brand value.

Strategic Partnerships and Financial Outlook

Beyond premium enhancements, American Airlines has secured a new co-branded credit card agreement with Citibank, effective January 2026. This partnership is expected to deliver 10% annual growth in partner cash payments, contributing an additional $1.5 billion in EBIT by 2030 compared to the trailing 12 months through Q3 2025. The airline also anticipates regaining its historical share of indirect corporate sales channels by the end of 2025. Network expansion, particularly at northern hubs and by increasing Dallas-Fort Worth (DFW) banks from nine to thirteen, is expected to complement these initiatives and support margin improvement.

Financial projections for American Airlines include adjusted earnings per share of $1.75 in 2026 (revised from $1.85) and $2.50 in 2027. For 2027, the base case assumes a 4% increase in ASMs, 3% growth in total revenue per available seat mile (TRASM), and a 2.5% rise in cost per available seat mile excluding fuel (CASM-Ex). Adjusted EBITDAR is forecasted at $6.86 billion, with a target multiple of 5x, reflecting the company’s leverage position. The new price target of $20 represents a 25% upside from the current share price of $15.73, based on an 8x price-to-earnings multiple.

Sun Country: Hybrid Model and Strong Free Cash Flow

The upgrade for Sun Country is driven by its flexible low-cost business model and resilience during economic cycles, particularly in cargo and charter operations. Stathoulopoulos anticipates significant margin growth as the airline restores Scheduled Service after deploying its Amazon fleet and as its transportation services agreement with Amazon matures. The long-term, asset-light capacity purchase agreement with Amazon, along with stable charter revenues from long-term contracts, provides financial stability. With no major aircraft capital expenditures expected until late 2027, Sun Country is projected to generate strong free cash flow, with 2027 FCF per share estimated at around $4.95, yielding approximately 20%.

Key financial estimates for SNCY include adjusted EPS of $1.50 in 2026 (previously $1.60) and $2.10 in 2027. The price target for Sun Country has been raised to $20, offering a potential 31% increase from the current price of $15.35.

Industry-Wide Upgrades and Analyst Preferences

Stathoulopoulos has increased price targets across the airline sector, updating valuations to reflect 2027 estimates and projecting roughly 25% earnings per share growth for the group. He favors airlines with a strong focus on premium services and unique growth opportunities, such as American Airlines and Sun Country, in an environment where disciplined capacity and recovering demand are likely to drive continued momentum.