The Zacks Analyst Blog Highlights American Airlines, Delta Air Lines, United Airlines, Spirit Airlines and Hawaiian Holdings
For Immediate Release
Chicago, IL – September 21, 2023 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: American Airlines AAL, Delta Air Lines DAL, United Airlines UAL, Spirit Airlines SAVE and Hawaiian Holdings HA.
Here are highlights from Wednesday’s Analyst Blog:
Airline Industry Depreciates -7.1% in the Last Month: Here's Why
It is a well-documented fact that the stronger-than-expected bounce back of air travel has served as a huge boon for airline stocks. With passenger revenues accounting for most of the top line, airline revenues are moving northwards in the post-COVID-19 scenario.
Air travel demand is not only strong on the leisure front (pent-up demand for international travel is the most vital driver of leisure travel), but what is more encouraging is that business travel is coming back as pandemic-related restrictions are removed. Despite the bullish scenario concerning the top line, the Zacks Airline industry has shed 7.1% of its value in a month's time, against the S&P 500's 0.4% uptick.
Let's delve deep to unearth the reasons behind the disappointing price performance despite the bright top-line scenario.
The northward movement in oil prices is not a welcome development for airline stocks. This is because expenses on fuel represent a significant input cost for airlines. Therefore, an increase in fuel costs hurts bottom-line growth. Recently, oil prices crossed the $90-per-barrel mark for the first time since November. The northward movement in crude price is primarily due to the extension of production cut by Saudi Arabia and Russia through the end of the current year.
The sharp rise in one of the primary input costs of airlines is likely to hurt the bottom-line growth of the stocks in the third quarter of 2023. The development has caused key airline stocks, including the likes of American Airlines, Delta Air Lines, United Airlines and Spirit Airlines, to increase their September quarter projections for fuel price per gallon.
American Airlines' management stated that "fuel prices have increased considerably since the company's initial third-quarter guidance issued on Jul 20, 2023". American Airlines now expects the fuel cost per gallon (including taxes) in the $2.90-$3.00 band (the earlier guidance was in the $2.55-$2.65 range). DAL now expects fuel price per gallon in the $2.75 - $2.90 range (earlier guidance: $2.50 - $2.70).
Spirit Airlines' management now expects third-quarter fuel cost per gallon to be $3.06, against the earlier projection of $2.80. United Airlines now expects the fuel cost per gallon in the $2.95-$3.05 band (the earlier guidance was in the $2.5-$2.8 range).
As if high fuel costs were not enough, labor costs also increase courtesy of the multiple labor deals witnessed in the space. Given the high air-travel demand and the labor crunch in the post-COVID-19 scenario, the bargaining power of various labor groups has increased.
Another headwind has emanated from the devastation caused by wildfire to the Lahaina town in West Maui. This has affected Hawaiian Holdings, currently carrying a Zacks Rank #3 (Hold), the most.
You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Due to the reduced travel demand to Maui from the U.S. Mainland and Neighbor Islands, HA now expects third-quarter 2023 total revenues per available seat miles to decrease 4-7% from third-quarter 2022 levels (prior projection: 2-5% decline).
What's Ahead for Airlines?
With people again taking to the skies, passenger revenues are likely to remain strong. However, costs are likely to stay high, in turn hurting the bottom-line growth of airlines.
The International Energy Agency recently said that the actions of Saudi Arabia and Russia will lead to a supply deficit through the December quarter. This implies that oil prices will remain high, which is a bane for airlines' bottom lines. We expect pay-related deals with labor groups to continue, at least in the near term. Consequently, high labor costs are also likely to eat into profitability.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Delta Air Lines, Inc. (DAL) : Free Stock Analysis Report
United Airlines Holdings Inc (UAL) : Free Stock Analysis Report
American Airlines Group Inc. (AAL) : Free Stock Analysis Report
Spirit Airlines, Inc. (SAVE) : Free Stock Analysis Report
Hawaiian Holdings, Inc. (HA) : Free Stock Analysis Report
