Analyst calls don’t often come with an admission that a thesis has run its course, but that’s exactly what Rothschild & Co Redburn did on Southwest Airlines Co. (NYSE:LUV) on September 18. The firm raised Southwest to Neutral from Sell and lifted its price target to $40 from $35, ending a bearish position that had defined its view on the stock for more than a year, while reaffirming Buy ratings on Delta Air Lines Inc. (NYSE:DAL) and United Airlines Holdings, Inc. (NASDAQ:UAL), which it continues to see as the sector’s stronger long-term prospects.
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A Thesis That “Played Out”
Analyst James Goodall’s report framed the Southwest Airlines Co. upgrade in somewhat mild terms: valuation had reverted to more acceptable levels, and, as he phrased it, “our Sell thesis has now played out.” He also mentioned something more specific than valuation alone, stating that early gains from Southwest’s ongoing product pivot have been stronger than expected, with ancillary revenue emerging as the fastest-growing component of passenger revenue since the airline introduced reserved seating and extra-legroom class. As recently as March, the firm was raising its price target for the stock (from $27 to $35) while maintaining a Sell rating, warning that accelerating domestic capacity growth and geopolitical risk from the Iran conflict could put pressure on fuel costs and earnings estimates across the industry.
Why Redburn Still Prefers Delta and United
Redburn’s more enthusiastic conviction remains with the two network carriers. Goodall pointed to numbers from the first half of 2026 as validation of strong leisure and premium demand, as well as a market willing to pay higher domestic rates. He anticipates this trend to continue into next year, aided by persistent capacity restrictions, softer competition from low-cost airlines, and an aged short-haul fleet with rising retirements, which should keep overall sector supply under control. Goodall is also significantly more optimistic about international routes, noting global wide-body aircraft constraints and an increasing market for long-haul travel as structural tailwinds favoring Delta and United’s global reach over Southwest’s more domestically focused network.
Institutional Positioning
Institutional interest increased across all three carriers. Delta Air Lines Inc. saw hedge fund ownership increase from 68 in the first quarter to 75 in the second, with short interest accounting for a modest 3.86% of float. United Airlines Holdings, Inc. experienced a more modest increase, from 68 to 73 funds, with short interest slightly higher at 5.42%. Southwest Airlines Co. saw a similar gain, from 54 to 57 funds, as well as the highest short interest of the three at 5.82%, indicating that the market remained divided on Southwest even as institutional ownership increased.
Reading the Rating Change
The case for Southwest Airlines Co. based on more than just a valuation reset is compelling: a product pivot toward reserved seating and premium ancillary revenue represents a business-model shift for an airline long defined by open seating and no change fees, and if that shift gains traction, it could support further upside beyond what a Neutral rating suggests. However, Redburn’s own framing, a thesis that has simply “played out” rather than reversed, is a significantly weaker endorsement than the ratings it maintains on Delta Air Lines Inc. and United Airlines Holdings, Inc., and the firm’s explicit preference for globally exposed carriers over domestically focused ones leaves Southwest structurally disadvantaged in Redburn’s own framework, regardless of its recent product improvements. Delta and United’s case is based on capacity discipline and international demand trends that have proven persistent until 2026, but both airlines also carry more sophisticated, capital-intensive fleets susceptible to the same wide-body supply problems. Goodall’s tailwind could work both ways if aircraft delivery delays worsen rather than improve.
Insider Monkey’s Verdict
Investors in Southwest Airlines Co. should watch whether the ancillary-revenue and product-pivot momentum Redburn flagged continues to appear in upcoming quarterly reports, as this, more than the upgrade, will be the true measure of whether the airline’s business model transition is sustainable. Meanwhile, investors in Delta Air Lines Inc. and United Airlines Holdings, Inc. should closely monitor international capacity and wide-body delivery timelines, as Redburn’s above-consensus 2027 forecasts for both carriers is heavily reliant on international demand and supply dynamics continuing to play out as expected, rather than domestic conditions alone.
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