The US airline sector is approaching 2026 amid constrained capacity and enduring demand for premium travel segments, setting the stage for carriers with pricing leverage and robust cash generation to widen the gap with their peers. Bank of America Securities analyst Andrew G. Didora has outlined a positive investment framework for airline equities looking into 2026, based on disciplined capacity management, sustained premium customer demand, and more favorable year-over-year comparisons following volatility experienced in early 2025.
Didora argues that ongoing industry restructuring is aligning benefits toward major network airlines possessing significant pricing power, well-established loyalty programs, and strong cash flow. These attributes are critical for delivering outsized returns to investors over the coming year.
A key variable in the supply-demand equation will be the restructuring of Spirit Aviation Holdings, Inc. (OTC:FLYYQ). Should this lead to more aggressive capacity reductions, it could further tighten available seat supply, representing a potential upside catalyst for the broader industry.
Delta Air Lines: Leading Cash Generation and Premium Positioning
Among the top picks in this sector is Delta Air Lines, Inc. (NYSE:DAL), which holds a Buy rating with a raised price target of $80, up from $74. Didora highlights Delta’s standout capabilities in free cash flow generation and premium market exposure. He projects free cash flow exceeding $3 billion for 2026 and has increased the earnings per share estimate for that year to $7.30 from $7.00. This adjustment reflects an anticipated widening spread between unit revenue growth and cost pressures.
Delta’s upcoming earnings release scheduled for January 13 is expected to set the early tone for airline earnings in 2026. Didora forecasts a first-quarter revenue increase of approximately 5.3% and an EPS of 73 cents. From a valuation standpoint, he assigns Delta a multiple of about 6.0 times estimated 2026 EV/EBITDAR, which reflects its advantageous sector positioning.
United Airlines: Sustained Revenue Momentum and Network Strength
United Airlines Holdings, Inc. (NASDAQ:UAL) also retains a Buy rating with an elevated price target of $130 compared to the previous $120. United stands to benefit from accelerating unit revenues as it moves into 2026. As operational challenges abate and demand remains sturdy, the company is forecasted to generate over $2 billion in free cash flow.
United’s extensive route network and strong customer loyalty underpin this positive outlook. Despite concerns around increased labor expenses potentially squeezing margins, Didora believes solid revenue momentum will largely counterbalance such pressures. United shares trade at an implied 6.0 times 2026 estimated EV/EBITDAR, consistent with its peer Delta.
American Airlines and Southwest Airlines: Different Challenges Limit Upside
American Airlines Group Inc. (NASDAQ:AAL) carries a Neutral rating with an increased price target of $17 (previously $15). Didora notes improving revenue momentum but stresses continued balance sheet constraints as a limiting factor. He expects unit revenue performance to rebound in early 2026 due to easier year-over-year comps and stronger main cabin results.
An anticipated improvement in Citi card economics supports an upward revision of the 2026 revenue growth forecast to about 7.5%. Nevertheless, American’s higher leverage and lower margin profile justify a valuation discount relative to the larger network carriers.
Southwest Airlines Co. (NYSE:LUV) is rated Underperform, with a price target raised to $37 from $28. While Didora projects potential upside in 2026 from initiatives such as bag fees, extra-legroom seating, assigned seating, and a newly instituted Chase credit card partnership, he highlights significant execution risk associated with Southwest’s transitional shift toward a network carrier model. This risk supports a discounted valuation on the stock despite a 2026 EPS estimate increase to $3.60.
Market Dynamics Favor Pricing Power and Scale
Didora’s analysis emphasizes that the airline industry's 2026 environment is poised to reward carriers that can effectively manage constrained supply to maximize pricing advantages. Premium revenue generation and reinvestment capabilities will be pivotal differentiators. Large network airlines with flexible balance sheets are better positioned structurally to leverage these favorable market conditions.
Accordingly, carriers such as Delta and United are projected as structural winners due to their scale and financial flexibility. Conversely, American’s growth potential is tempered by leverage concerns, and Southwest faces uncertainties tied to strategic execution.
At the time of the latest market check, the following share performance was noted: Delta Air Lines increased 1.63% to $72.99; United Airlines advanced 2.70% to $117.99; American Airlines rose 0.69% to $15.94; and Southwest Airlines moved up 1.58% to $43.11.