) and JetBlue (JBLU
) to reduce from neutral, and downgraded America West (AWA
) to neutral from buy.
Analyst Sam Buttrick says the only two times in the last two decades when small-discount carrier margins exceeded major airline networks' margins is when the majors reduced their supply. However, he sees the major airlines' capacity coming back in 2004. He also thinks the major airlines are likely to add disproportionately in competitive markets.
Buttrick says today's discounters are bigger and better than ever before -- but they are not immune from the basics of supply and demand. He added that margin growth, which is needed to justify the discount carrier's lofty price-earnings ratios, will become increasingly difficult for discounters as competitive supply returns.