TD Cowen keeps United, Delta top airline picks as fuel costs threaten earnings

TD Cowen maintained United Airlines and Delta Air Lines as its top airline picks, citing their diversified revenue streams and strong balance sheets as rising fuel costs threaten to weigh on fourth-quarter earnings across the U.S. aviation industry. 

The investment bank expects airlines to face growing pressure to manage capacity and protect profitability as investors assess the resilience of air travel demand and the industry's pricing power. Carriers with weaker margins and heavier debt burdens are likely to face the greatest pressure to cut unprofitable flights, TD Cowen said in its October 26 capacity tracker.

TD Cowen rates American Airlines, Southwest Airlines and Alaska Air Group at Buy, while maintaining United and Delta as its preferred picks. The bank said American has a relatively diverse revenue mix, but prolonged higher fuel costs could delay its efforts to reduce debt. 

U.S. airline capacity is scheduled to grow 1.8% year-over-year in the fourth quarter of 2026, with domestic capacity increasing 3% while international capacity declines 1.2%. Growth is expected to accelerate to 2.4% in the first quarter of 2027, comprising a 3% rise in domestic capacity and a 0.9% increase in international capacity.

The bank said it continues to see strong year-over-year price increases across domestic and international markets. However, fourth-quarter fuel prices are likely to exceed second-quarter levels, creating a headwind for earnings per share.