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has shares of United Airlines up a little over 1.5% here, but the stock did initially fall 1% on the back of its profits coming in below expectations. Though they did jump more than 20% for the quarter, we've got another story like that with Alaska Air forecasting full-year profits below expectations. That stock is down 2.5% in the pre-market trade. So here to discuss what this means for airline stocks, we've got Tom Fitzgerald, TD Cowen, Vice President, covering the aerospace. Tom, thanks so much for being here this morning. I want to take a little bit of a step back, cuz we're hearing this word overcapacity from a lot of the airlines, but they've got too many seats. They're not filling them. I'm not seeing that when I am on flights right now. Does not feel like overcapacity. What is the disconnect?

Yeah, I think, um, it's primarily in the main, the main economy cabin. There's just too many, too many, too many main economy seats chasing not enough leisure travel. And, um, I think what we've seen is with corporate travel plateaued and having a very gradual recovery, the the full-service carriers, the Uniteds, the Deltas of the world have have moved more into those traditional leisure markets, and they're doing doing that with a much better product, competitive-wise, you know, they they've cracked the code on basic economy, and they're really, you know, they're taking advantage of their loyalty program to offer consumers aspirational travel, and they're leveraging, you know, investments to make, you know, to run a more reliable operation, it's just gives consumers, you know, consumers are voting with their wallets, and they're choosing those carriers. Um, and I think we're we're entering a real interesting fork in the road moment when where the weaker players, the the players who are flying a lot of loss-making routes are going to have to retrench or raise prices, and that's going to be a great opportunity for the Uniteds of the worlds to to take share and continue their upward trajectory.

Tom, more specifically, what does that opportunity look like then to take share, and how big of a catalyst do you then see that being for United stock?

Yeah, I mean, it's going, it will vary market to market, but you know, you could see you could see, you know, you'll see, see's just just flat up just pulling out of markets, or significantly cutting back, and United will be, you know, the only game in town, or you could see, um, you know, Southwest does, you know, launches baggage fees, and you know, maybe they get some incremental revenue, but they could also destroy a lot of demand because there's many customers who who choose to fly them specifically for the bag fees, um, or not paying bag fees. So, um, you know, we're interested today in the call to kind of get a better sense of management to see how much volume they think they could capture over the next, you know, in the coming quarters, and you know, get a better better sense of what gives them the confidence that they expressed in their prepared remarks that, um, their competitors will pull back, you know, we're seeing a lot of capacity cuts starting in mid-August, but we're hoping to get a better, you know, more granular data on what they're looking what they're seeing out into the fall, and just, you know, because the industry, there's been other times when the industry has talked about rationalizing capacity, but then hasn't ended up finding religion, so.

It's interesting, Tom, because the airline sector is one of those that we look at for an indication of how the consumer's doing more broadly, and as an indication of what we might see for more consumer names throughout the earning cycle. When you talk about the management challenges, for example, do you see these struggles that some of the airlines are experiencing as idiosyncratic, or is it indicative of a struggling consumer?

I don't think it's indicative of a struggling consumer. Um, I just think the, the the the game changed a lot. I mean, um, you know, United's talked about this a great deal, we've written about it a lot, but the cost convergence is just, you know, the low-cost carriers, the ultra-low-cost carriers, they're just at such a disadvantage point from, you know, competitive-wise. Um, and, you know, they're just not, uh, you know, I think people coming out of the pandemic are much more willing to pay for a more pleasant onboard experience, to pay for a more reliable product, um, you know, to to earn loyalty, you know, to earn miles in an airline where they can redeem to go to Europe or something versus just, you know, another low-cost leisure, no-frills carrier.

Tom, do you think that this is the theme that we're going to hear this earning season when we talk about the fact that the inability of of some of these lower cost carriers to fill the seats and then obviously having to adjust pricing, it seems to be weighing obviously on the entire sector. How long do you expect that overhang to exist?

I I think, you know, I don't I think it can only you can only continue to post, you know, deep losses quarter by quarter for so long. People will only underwrite that for so long. I think we're getting, you know, as as major debt maturities start to start to come current, I I think that's going to, you know, that's going to be cause an inflection point. And I think think the next, you know, month, 60 days, this quarter is going to be very fascinating for the industry. I think many carriers might hit an air pocket, and I think by the time we get to November and United and Delta are having their investor days, I think we'll have a much better sense of, you know, what that fork in the road looks like and how the wheat will separate from the chaff. And I think they're going to have a great story to tell investors come November and really set up the shares well for a rerating as long as the economy hangs in.

All right, Tom Fitzgerald, great to get your insight here on the heels of these results. Great to talk to you. TD Cowen's Vice President covering airlines industry. Thanks so much.

Thank you.