US airline stocks are bound to gain from "a perfect storm of tailwinds" in 2025, including buoyant demand, capacity growth, and a "benign jet fuel environment," Morgan Stanley said in a note Wednesday.

"We expect demand to remain resilient with volume growth and mix strength continuing especially as International and Corporate ramps complete the pandemic recovery," the firm said in the note. "We believe volumes can grow [mid-single digit] with capacity growing [low-single digit] for the foreseeable future."

Morgan Stanley also expects 2025 to be "the first year to see sustained run-rate [revenue per available seat mile] over [cost per available seat mile] growth, leading to expanding margins across the industry."

The firm said while its bias remains toward "high quality premium names," - such as Delta Air Lines (DAL), United Airlines (UAL) and Alaska Air Group (ALK) - it is also mixing in potential "domestic" beneficiaries, including Allegiant Travel (ALGT), Southwest Airlines (LUV), JetBlue (JBLU), American Airlines Group (AAL) and Frontier (ULCC).

Alaska Air has become Morgan Stanley's new no. 1 ranked airline, moving from the second spot in 2024, with a higher price target of $90 from $70. Delta Air Lines is now ranked no. 2, moving from the top spot, and American Airlines moves up to no. 3 from no. 4, with a price target of $22, up from $18, the firm said.

Morgan Stanley is resuming coverage of Southwest Airlines with an overweight rating and $42 price target. Southwest is ranked no. 4, followed by United at no. 5, with a higher price target of $130 from $88, according to the note.

The firm is also resuming coverage of JetBlue at equal weight with an $8 price target.

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