Shares of several U.S. airline stocks are in focus after a JPMorgan analyst shook up his ratings in the group, upgrading United Continental Holdings (UAL) and JetBlue Airways (JBLU), while downgrading Southwest Airlines (LUV) and Alaska Air (ALK). 

INDUSTRY MANAGING ITSELF: On Tuesday, JPMorgan analyst Jamie Baker said the U.S. airline industry is now managing itself through the combination of cost convergence, fare unbundling, broad consolidation, reduced new entrant activity, and return-oriented management teams. The airlines have shifted from a “historical tendency to wage wars of attrition,” he said, in a research note reviewing fourth quarter earnings for U.S. airlines, adding the industry will continue efforts to ensure profitability and sustain balance sheet repair.

UNITED UPGRADE: Baker double upgraded United to Overweight from Underweight and raised his price target for the shares to $83 from $60. The shares are the “cheapest in the sector and among the most washed out, having declined the most from recent highs,” Baker said. The analyst believes United’s current plan to improve hub connectivity and increase share in mid-continent hubs makes sense and is credible for margin improvement. Baker added the plan necessitates accelerated capacity growth and the company has suggested a 4%-6% capacity forecast for 2018-2020.

JETBLUE UPGRADE: Baker also upgraded JetBlue to Overweight from Neutral and raised his price target for the shares to $26 from $22. The company’s costs are “gradually coming under control” and its balance sheet is “sound,” as the airline pursues a more returns-oriented strategy, Baker said. He also believes JetBlue’s network appears the least exposed of any to United Continental’s mid-continent hub efforts.

SOUTHWEST DOWNGRADE: Meanwhile, Baker downgraded Southwest to Neutral from Overweight and raised his price target for the shares to $70 from $67. The analyst said that while Southwest has a track record of profitability and a loyal customer base, current industry strength is being driven by international travel and corporate demand. Southwest is less exposed to these areas than its peers, the analyst notes, adding the rating reflects a “better risk-to-reward at the legacy carriers”.