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Southwest Air Stock Up; JP Morgan Says Airline Rally 'Has Room to Run'

Southwest and other air carrier stocks rise as JPMorgan says the rally for U.S. airlines 'has room to run.'

Southwest Airlines  (LUV) - Get Southwest Airlines Co. Report took off on Friday after JPMorgan analysts upgraded the carrier to overweight from neutral and boosted their price target to $70 from $64, saying the current rally for U.S. airlines "has room to run."

Shares of the Dallas company at last check were climbing 4.3% to $53.65. 

Delta Air Lines  (DAL) - Get Delta Air Lines, Inc. Report, United Airlines  (UAL) - Get United Airlines Holdings, Inc. Report, American Airlines  (AAL) - Get American Airlines Group, Inc. Report, and JetBlue Airways  (JBLU) - Get JetBlue Airways Corporation Report were also rising.

"First and foremost, we believe the current equity rally has room to run, in part given encouraging Chase  (JPM) - Get JPMorgan Chase & Co. (JPM) Report travel spend data, the recent planned relaxation of U.S. borders, and equity values that remain significantly below their vernal highs," analyst Jamie Baker said in a research note.

Baker said flown domestic segments by JPMorgan employees are gyrating between 25% and 35% of 2019 levels, having sprung to life in early summer. 

Intra-Europe is trailing but recently increased sharply, Baker said.

And "the all-important New York-London market remains significantly depressed, though we're seeing some forward bookings."

The analyst said that JPMorgan was the 19th largest U.S. spender on air travel in 2019.

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"Chase air travel card spend – capturing both consumer and corporate – stabilized in early September and has been accelerating since," he said. 

"Interestingly, momentum significantly increased concurrent with the Sept. 20 announced relaxation of U.S. borders."

The Biden administration plans to ease travel restrictions in early November. Those rules have barred much of the world from entering the U.S. since 2020.

The U.S. will lift travel restrictions that starting in early 2020 were imposed on 33 countries, including China, India and Brazil. The relaxed rules apply to travelers who are fully vaccinated against Covid-19.

Last month, Southwest Air offered extra pay to staff who show proof of vaccination by mid-November. Other airlines have made similar offers to get employees inoculated.

Baker noted that air carriers' balance sheets are under varying degrees of pressure, most shareholders have been diluted, and "and we've seen that Covid-19 variants can slow spending and wreak havoc on equities."

Still, the analyst noted that Covid-19 data are pointed largely in the right direction..

"[We] believe the current rally has further to go, and we recommend trade-oriented accounts take up short-term residence in airline stocks," he said.