Raymond James analyst Savanthi Syth doesn’t think investors will give airlines like Delta Air Lines (DAL), United Continental (UAL) and American Airlines (AAL) credit for lower oil prices until prices return to normal levels. They explain why:

Cash flow impact meaningful: Airline multiples have contracted in 2015 as equity investors are hesitant to give full valuation to fuel decline-driven earnings growth. This is somewhat understandable given the volatility of fuel prices. However, given the large amount of cash being returned to shareholders and deleveraging of the balance sheets, we believe that multiples will expand once fuel prices return to more “normal” levels, likely in 2017. Of note, with the material growth in profits, wage rate expectations among U.S. airline labor groups appear to be rising as evidenced by the rejection of tentative agreements agreed upon by management and union leadership at Southwest (flight attendants) and Delta (pilots). We continue to expect reasonable cost pressure related to salaries and wages. However, we expect airlines to use capacity discipline to push through fare increases to cover rising labor costs…

We reiterate our Strong Buy rating on Alaska Air (ALK) and Spirit Airlines (SAVE) and our Outperform ratings on Delta Air Lines and United Continental among large-cap stocks..

Airlines: Oil Will Be Lower For Longer, Will Anyone Care? - Stocks to Watch - Barrons.com