The airline industry is setting up for what could be a pretty solid 2026. That's the view from BofA Securities analyst Andrew G. Didora, who sees a confluence of favorable factors: capacity that's staying relatively tight, premium travelers who keep opening their wallets, and easier year-over-year comparisons that should help unit revenues climb across the board.

Winners and Losers: Rating Changes

Didora expects Delta Air Lines, Inc. (DAL) and United Airlines Holdings, Inc. (UAL) to dominate the pack in 2026 free cash flow generation. We're talking over $3 billion for Delta and more than $2 billion for United. Those are the kind of numbers that get investors excited.

But here's where things get interesting. The analyst also thinks economic stimulus measures could give low-cost carriers a particular boost, which led to some rating shuffles.

Allegiant Travel Company (ALGT) got upgraded to Neutral from Underperform. The reasoning? Allegiant is keeping its capacity under control and deploying the 737 MAX in a cost-efficient way. Sometimes discipline pays off.

Going the other direction, Frontier Group Holdings, Inc. (ULCC) was downgraded to Underperform from Neutral. The culprit here is relative expense issues, particularly when you exclude sale-leaseback gains from the picture.

Alaska Air Facing Turbulence But Positioned for Recovery

The analyst maintained a Buy rating on Alaska Air Group, Inc. (ALK) and bumped the price target to $70 from $62.

Alaska had a rough stretch dealing with broader industry headwinds. IT outages in July and October didn't help matters, and higher West Coast jet fuel costs put pressure on third and fourth quarter 2025 results. Not exactly the smoothest flight path.

But looking forward to 2026, Didora sees meaningful upside from the Hawaiian Airlines integration synergies. The combination should improve both unit revenues and cost efficiency, while the carrier continues riding the wave of strong premium revenue trends. Sometimes short-term pain sets up longer-term gains.

JetBlue's Weather Problems

JetBlue Airways Corporation (JBLU) kept its Underperform rating with a price forecast of $4.

The analyst updated fourth-quarter estimates to account for holiday weather disruptions that forced over 400 flight cancellations. Those kinds of operational hiccups add up quickly.

Didora revised capacity growth estimates to negative 1.8% from negative 1.3%, raised unit cost estimates to positive 5.3% (above the company's 3% to 5% guidance), and tweaked unit revenues slightly higher to negative 1.9% from negative 2.2%.

For 2026, the analyst estimates EPS of $(1.08), which aligns with consensus. The first quarter FY26 EPS estimate of $(0.60) comes in slightly below the Street's $(0.54).

The Big Picture for 2026

Here's where the math gets interesting. Didora projects U.S. domestic capacity growth of roughly 2.5% in 2026. But if Spirit Airlines reduces capacity by 50% versus its current plan of a 20% cut, industry growth could drop to around 1.8%.

Meanwhile, BofA Economics is forecasting real GDP growth of positive 2.4%. If the historical relationship holds where passenger demand grows at 1.4 times GDP growth, passenger demand could rise over 3.5%.

The analyst also points out that airlines will benefit from easier comparisons since first-half FY25 demand fell 1.6%. When you're measuring against weakness, improvements look even better.

The bottom line: when demand outpaces supply, unit revenue growth should follow, and that tends to drive airline valuations higher. It's basic economics, but it's also the kind of setup that airlines haven't always enjoyed in recent years.