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JetBlue Airways (JBLU), which raised its Q4 revenue outlook yesterday morning, set off a chain reaction in the commercial airline space that has sent stocks in that industry flying higher. Following in JBLU's footsteps, Southwest Air (LUV) and American Airlines (AAL) both raised their Q4 outlooks earlier this morning, reflecting robust travel demand and a stronger pricing environment as capacity across the industry moderates.

• While travel demand has remained quite resilient -- especially for international destinations -- LUV and AAL have contended with some company-specific issues that have enabled rivals Delta Air Lines (DAL) and United Airlines (UAL) to fly ahead. For LUV, the company's antiquated no-frills business model and lack of international flights prevented it from capitalizing on some of the strongest and most profitable trends within the airline industry, such as rising interest in premium seats and products.
  • Consequently, its margins have lagged behind its peers. For instance, in Q3, LUV's operating margin was just 0.5%, compared to 8.9% for DAL. With LUV beginning to sell assigned seats in 2H25, including premium seats with more legroom, it will attain a new high-margin revenue stream.
• The company's slow response in adapting to post-pandemic changes within the industry drew the attention of activist investment firm Elliott Investment Management, which forged an agreement with LUV in late October, enabling Elliott to place six hand-picked candidates on LUV's Board of Directors. A key objective of the rearranged Board will be to improve the airline's efficiency by taking out costs and optimizing its network, including through improved aircraft utilization and the elimination of unprofitable routes.
  • LUV has some work to do in this regard as CASX-ex increased by 11.6% in Q3, while the company also guided for an increase of 11-13% for Q4. In this morning's filing, LUV reaffirmed its CASM-ex guidance. 
• Meanwhile, AAL is recovering from a faulty sales strategy that reduced its sales force and relied more on existing corporate contracts to drive sales, while also prioritizing passenger load rather than more profitable parts of the business, like premium products. CEO Robert Isam began taking steps to reverse this failed strategy this past summer and those efforts are beginning to pay off.
  • AAL significantly raised its Q4 EPS guidance to $0.55-$0.75 from its prior forecast of $0.25-$0.30 as the company is better positioned to benefit from a stronger-than-anticipated pricing and revenue environment.

Despite the ongoing macroeconomic headwinds, travel demand is strengthening, and the holiday season is shaping up to be a very strong one for LUV, AAL, and others. While costs remain elevated, LUV and AAL should be poised to drive stronger profits as pricing power improves due to lower industry-wide capacity, and as both airlines focus on higher-margin revenue opportunities, like premium seats.