Airline Stocks Were Taking Off, Welcome Best Earnings Season?

MillionaireTiger
2022-07-13
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On Tuesday trading, $American Airlines(AAL)$ Top the increase of S&P 500 conponent stocks with 9.98%. Besides that, $United Continental(UAL)$ ,$Carnival(CCL)$ ,$Delta Air Lines(DAL)$ ,and $Southwest Airlines(LUV)$ increased 8.09%,7.54%, 6.15%, 4.64% respectively. 

5-D chart

And the YTD in 2022 of each airline stock is as blow:

Why most airlines stocks rose on Tuesday?

  • Airline stocks surged on Tuesday as falling oil prices $Light Crude Oil - main 2208(CLmain)$ , stoked hopes for lower costs for the carriers down the line. 
  • From Friday through Sunday, 6.82 million people passed through security checkpoints, according to the Transportation Security Administration, nearly back to 2019 levels.
  • Airline earnings season begins on July 13th, and investors were encouraged by a pre-release update from $American Airlines(AAL)$ saying that key metrics are likely to fall within previous guidance. Investors have been worried that higher costs would eat into results. 

In details: 

$American Airlines(AAL)$ Group which is scheduled to release earnings on July 21, expects its second quarter to land within the middle of its previous guidance, meaning the higher fuel and labor costs and network disruptions that have made headlines are not expected to weigh on results. The airline sector is flying high as a result.

American Airlines said in its latest announcement that the company's preliminary Q2 revenue will increase by about 12% compared with the same period in 2019.

The airline is guiding for total revenue of about $13.4 billion, which compares favorably to the current Wall Street consensus estimate of $13.3 billion.

Total revenue per available seat mile (TRASM) is expected to grow approximately 22.5% compared to the Q2 of 2019, compared with the company's previous guidance of 20%-22% growth. Cost per seat mile (CASM) is expected to increase by approximately 12% compared to the second quarter of 2019, compared to previously provided guidance of a 10%-11% increase.

$Delta Air Lines(DAL)$ is expected to report it's Q2 2022 financial results on July 13.

The market expects the company's Q2 revenue to return to pre-pandemic levels. Wall Street expects $(Delta)$ earnings per share to come in at $1.66, up from a loss a year ago. Revenue was expected to jump 72% to $12.251 billion. DAL stock has a 22 Composite Rating. Its EPS Rating is 33.

Delta has been viewed as a top operator for years and investors will be eager to hear what management has to say about the rest of the year, and specifically whether the company has seen inflation and recession fears eat into travel demand.

Delta Air, in June, said it expected demand in leisure, business and international travel had improved throughout the second quarter. But it expected higher fuel and other costs, following Russia's invasion of Ukraine, cuts to flight schedules and "investments in operational reliability."

"The demand has been phenomenal for the industry and especially for Delta," CEO Ed Bastian said at a conference last month.

However, Delta has said it planned to shrink its flight schedules over this summer, as it struggles to stay staffed up. 

For those interested in buying in and riding out the potential turbulence up ahead, $(Delta)$ looks like a strong candidate to recover ahead of the pack and Wednesday's earnings call should be of particular interest.

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'Best Earnings Season' For Airline Stocks?

We're still a year or more away from the industry recovering from the pandemic, and a lot can go wrong in the meantime.

Morgan Stanley analysts, in a research note on Friday, said the second quarter "could be the best earnings season for the Airlines in years (decades?) despite $4 jet fuel, which speaks volumes for the power of the demand recovery."

"However," they continued, "the stocks are already pricing in an 'inevitable' Fall recession."

Morgan Stanley's airline stocks analysts said they would be looking for signs of falling airfare prices and waning demand. They also said they would be watching for the severity of the drop-off in demand following Labor Day.

The second half of the year remains uncertain due to concerns about how inflation and recession fears will impact travel demand. The industry has been trying to get a grip on surging demand as it continues to battle staffing issues internally and at airports and air traffic control towers, which are all affecting the ability of airlines to snap back to pre-pandemic normal.

It is fair to say airline investors are on edge heading into earnings season. The much-hoped-for rebound in vacation travel demand has materialized this summer, but unexpectedly high fuel costs and a shortage of pilots have eaten into growth plans.

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Comments

  • BenjiFuji
    2022-07-13
    BenjiFuji
    Win 200 Tiger-coins
    SIA cos its a great way to fly. However no confidence in the avivation industry as it is easily disrupted. War, oil, COVID, etc. Too many black swans. [LOL]
  • ___ _
    2022-07-13
    ___ _
    Win 200 Tiger-coins
    i would go for $American Airlines(AAL)$ as it is the largest in the world by fleet size, passengers carried and revenue passenger mile. Such an Airline will soar high when come to rally. ✈ [Victory]
  • Bonta
    2022-07-13
    Bonta
    Win 200 Tiger-coins
    If in doubt, get $U.S. Global Jets ETF(JETS)$, dun need to choose. [Cool] No confidence in airline industry. Zoom reduced biz travel. Current peak is revenge travel, which will run out.
    • Bonta
      Inflation and potential recession will cut demand, while high fuel costs will make it painful to travel. Dun see much tail winds behind, but i sure can see turbulence…
  • MHh
    2022-07-13
    MHh
    Win 200 Tiger-coins
    No favourite airline stock. Covid is not over, high oil prices and potential recession are all not looking good for this industry. Will stay away
  • bernardtayet
    2022-07-13
    bernardtayet
    Win 200 Tiger-coins
    Aviation sector is a bad one to invest. High capital expense, intensive labour, high operational costs in normal situation. Geopolitics,covid and inflation or recession add to its woes.No love at all.
  • koolgal
    2022-07-14
    koolgal

    I like $Delta Air Lines(DAL)$  most as it is the largest US airline by revenue and market capitalisation.  It can therefore weather the volatility better than the smaller airlines.

    With pent up demand after Covid-19 lockdowns and the opening of international borders, Delta Airlines's profits should soar.  However its operating costs due to higher fuel prices and staff shortages may hamper its growth. 

    Nonetheless the Financial Analysts have rated Delta Airlines as a BUY with a Target Price of USD 50.06 per share.  That is a fantastic upside!  Let's hope the forecast will come to fruition.

    @MillionaireTiger  @TigerStars  @CaptainTiger  

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