Shares of JetBlue (JBLU) - Get JetBlue Airways Corporation Report and American Airlines (AAL) - Get American Airlines Group, Inc. Report were both losing altitude on Wednesday after Goldman Sachs analysts downgraded both carriers and slashed their price targets.
At last check shares of JetBlue were down 2.1% to $15.78, while American Airlines was off 3.3% to $20.76.
Analyst Catherine O'Brien said in a research note that she was positive on airlines, but she downgraded JetBlue to neutral from buy and cut American Airlines to sell from neutral.
"We remain positive on the path to profitability recovery for the airlines over the medium term," O'Brien said.
"[But] we are reducing our December quarter 2021 and 2022 outlooks as we mark-to-market for fuel and a worse short-term revenue environment than we were previously anticipating."
Shares of both air carriers fell last week after The Wall Street Journal reported that the U.S. Justice Department was preparing a lawsuit to challenge the carriers' alliance.
The two airlines last year announced a partnership that would enable them to sell seats on each other's planes, boosting their presence in the New York area and Boston.
O'Brien said she was downgrading JetBlue because she expected costs necessary to continue its code-share partnership with American will outstrip revenue driven by the alliance over the medium-term.
That's "especially given the pricing pressure we expect to see across the industry due to elevated capacity and corporate/international demand that will likely still be in recovery," she wrote.
The analyst, who also cut her price target on JetBlue to $17 from $20, added that she expects the alliance "to ultimately be margin accretive as it provides JetBlue with incremental capacity growth opportunities and the ability to increase its corporate penetration."
O'Brien cut her price target on AAL to $18 from $19, saying she expected American Airlines to underperform "as its relatively higher operating leverage weighs on its profitability recovery in the weaker industry pricing environment we are expecting over the medium-term."
Separately, Wolfe analyst Hunter Keay rated JetBlue underperform, saying the airline's "desire for growth is well-established but cost controls with that growth has been less good."
"While we view the financial impact of the [Northeast] alliance as overrated from a tactical financial perspective, AAL gains access to JBLU’s better reach in those two cities (assuming they defeat or settle with the Department of Justice)," Keay said.