A Midsummer Night’s Dream! Time to travel to the lakes, the beach, and the mountains. The Airline Transportation industry is what caught my attention in July. Zacks Industry Rank System put Airlines at #13 out of 265 industries we rank. That puts this 25-company strong group into the top 5%.YTD returns have been +19.8%, while the S&P500 offered +10.8%. This spells out a nice share price outperformance. But can it continue?
The airline industry shoulders a lot of significant risks. Macro factors like sudden shifts in personal disposable income and spending patterns, safety concerns like terrorist attacks, oil price shocks, and covering analyst sentiment, all of these can turn quickly. They weigh on airline profits.
In addition, the USA “welcome mat” has been selectively removed from our airports, gratis the President’s Travel Ban. The world’s tourists (more broadly) have taken notice. In March, Tourism Economics forecasts had projected 4.3 million fewer visitors to the USA in 2017, with $7.4 billion in lost revenue. Let’s see what actually happens. The U.S. Supreme Court will hear arguments and write its opinion on the travel ban later this year, or early next year.
As to longer-term risk management --going forward-- look for order deferrals on large aircraft. This is not usually a good sign, on future demand at that particular airline.