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Airlines Have Experienced an Unprecedented Three Years
To say that the airline industry has had a tumultuous couple of years would be a massive understatement. In March of 2020, the COVID-19 pandemic swept the globe and nearly brought air travel (and all travel for that matter) to a standstill. Air traffic dropped by 96% in the immediate aftermath. As panic ensued and the airlines tried their best to survive, companies like United Airlines (UAL - Free Report) were forced to lay off thousands of employees (36,000 in UAL’s case). Meanwhile, other airlines were forced to retire planes while institutional investors dumped shares in a hurry.
In a rare circumstance, Warren Buffett, who had taken large positions in major carriers including United Airlines, Delta Airlines (DAL - Free Report) , and Southwest Airlines (LUV - Free Report) was forced to bite the bullet and absorb massive losses in his positions in May of 2020. How bad was the carnage? In the three months following the COVID-19 news going viral, the U.S. Global Jets ETF (JETS - Free Report) , an ETF that tracks a basket of major global airlines, lost two-thirds of its value.
Image Source: Zacks Investment Research
Next, airlines were ironically falling short of the number of employees (particularly pilots) necessary to meet rising demand after the initial demand shock and the subsequent bounce. The reason for this was the layoffs that occurred earlier in the year, an aging pilot population looking to retire, and vaccine mandates required by the major U.S. carriers which caused some employees to quit (today only UAL requires COVID-19 vaccines).
For a brief period between March 2020 and the first half of 2021, airlines seemed to be back on their feet. Citizens began traveling once again and demand began to claw its way back from the lows. The economy and stock market started clicking as the Federal Reserve kept rates at rock bottom levels and the government hurled billions of dollars in stimulus at ailing businesses. However, the euphoria would not last long. The next obstacle airlines would have to face is sky high fuel costs. After crude oil futures briefly went negative in 2020, they stormed back to more than $130 as demand increased and Russia invaded Ukraine.
Can the Major Airlines Gain Altitude Again?
Several positive pieces of information including fundamentals, technicals, and industry specific news suggest that the worst may be behind the airline stocks. Below are 5 reasons why:
1.) United Airlines Unveils Massive Guidance: Tuesday, after the market close, United Airlines announced earnings of $2.46 a share, handily beating consensus analyst estimates of $2.10. The Chicago-based mega-carrier also smashed revenue estimates and provided eye popping guidance for 2023. United now sees 2023 adjusted EPS to soar to between $10 and $12 per share from just $2.52 in 2022 and heavy losses of -$13.94 in 2021 and -$27.57 in 2020. Guidance of this size underscores immense confidence in the business moving forward.
2.) Technical Picture is Improving: United and other major carriers are displaying drastically improving price action. The “big 4” domestic airlines are above there 200-day moving averages, signaled a “Golden Cross”, and have crossed above multi-year downtrend lines.
Image Source: Zacks Investment Research
3.) Analysts are Bullish: According to Zack’s analyst data, Wall Street seconds UAL’s bullishness for the industry. Over the past 60 days, consensus analyst estimates are on the rise.
Image Source: Zacks Investment Research
Pictured: UAL Consensus Analyst Estimate trend.
4.) Air Traffic Data: In recent weeks, TSA data suggests that the number of daily airline travelers is back to pre-pandemic levels.
5.) Strong Industry Ranking:The Zack’s Transportation – Airline Industry is currently ranked in the top 20% of all industries tracked. It’s worth noting because studies have shown that more than half of a company’s performance is attributed to the underlying group.
6.) Boeing is a Bullish Barometer:Shares of airplane manufacturing juggernaut Boeing (BA - Free Report) are taking flight and are up 43.5% in the past six months. The super performance comes as the company turns around its production issues. Boeing is seeing strong momentum in deliveries and easing supply chains. In other words, airlines that are looking to expand their fleet should have no issues.
Outlook
The past few weeks have been telling for the airline industry. Top tier airline stocks shook off news that the FAA would need to ground flights several days ago. Recent TSA data and earnings reports point to a major recovery and the possibility that the industry is finally putting the pandemic behind it. With that said, investors are best served to be patient and show restraint for the time being if they are not already in the stocks. Airlines like UAL have moved vertically and are up 35% year-to-date and have made dramatic moves off their 2022 lows. In the coming weeks and months investors should look for these stocks to digest gains and offer low risk entry areas.
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6 Reasons Airlines Can Take Flight in 2023
Airlines Have Experienced an Unprecedented Three Years
To say that the airline industry has had a tumultuous couple of years would be a massive understatement. In March of 2020, the COVID-19 pandemic swept the globe and nearly brought air travel (and all travel for that matter) to a standstill. Air traffic dropped by 96% in the immediate aftermath. As panic ensued and the airlines tried their best to survive, companies like United Airlines (UAL - Free Report) were forced to lay off thousands of employees (36,000 in UAL’s case). Meanwhile, other airlines were forced to retire planes while institutional investors dumped shares in a hurry.
In a rare circumstance, Warren Buffett, who had taken large positions in major carriers including United Airlines, Delta Airlines (DAL - Free Report) , and Southwest Airlines (LUV - Free Report) was forced to bite the bullet and absorb massive losses in his positions in May of 2020. How bad was the carnage? In the three months following the COVID-19 news going viral, the U.S. Global Jets ETF (JETS - Free Report) , an ETF that tracks a basket of major global airlines, lost two-thirds of its value.
Image Source: Zacks Investment Research
Next, airlines were ironically falling short of the number of employees (particularly pilots) necessary to meet rising demand after the initial demand shock and the subsequent bounce. The reason for this was the layoffs that occurred earlier in the year, an aging pilot population looking to retire, and vaccine mandates required by the major U.S. carriers which caused some employees to quit (today only UAL requires COVID-19 vaccines).
For a brief period between March 2020 and the first half of 2021, airlines seemed to be back on their feet. Citizens began traveling once again and demand began to claw its way back from the lows. The economy and stock market started clicking as the Federal Reserve kept rates at rock bottom levels and the government hurled billions of dollars in stimulus at ailing businesses. However, the euphoria would not last long. The next obstacle airlines would have to face is sky high fuel costs. After crude oil futures briefly went negative in 2020, they stormed back to more than $130 as demand increased and Russia invaded Ukraine.
Can the Major Airlines Gain Altitude Again?
Several positive pieces of information including fundamentals, technicals, and industry specific news suggest that the worst may be behind the airline stocks. Below are 5 reasons why:
1.) United Airlines Unveils Massive Guidance: Tuesday, after the market close, United Airlines announced earnings of $2.46 a share, handily beating consensus analyst estimates of $2.10. The Chicago-based mega-carrier also smashed revenue estimates and provided eye popping guidance for 2023. United now sees 2023 adjusted EPS to soar to between $10 and $12 per share from just $2.52 in 2022 and heavy losses of -$13.94 in 2021 and -$27.57 in 2020. Guidance of this size underscores immense confidence in the business moving forward.
2.) Technical Picture is Improving: United and other major carriers are displaying drastically improving price action. The “big 4” domestic airlines are above there 200-day moving averages, signaled a “Golden Cross”, and have crossed above multi-year downtrend lines.
Image Source: Zacks Investment Research
3.) Analysts are Bullish: According to Zack’s analyst data, Wall Street seconds UAL’s bullishness for the industry. Over the past 60 days, consensus analyst estimates are on the rise.
Image Source: Zacks Investment Research
Pictured: UAL Consensus Analyst Estimate trend.
4.) Air Traffic Data: In recent weeks, TSA data suggests that the number of daily airline travelers is back to pre-pandemic levels.
5.) Strong Industry Ranking:The Zack’s Transportation – Airline Industry is currently ranked in the top 20% of all industries tracked. It’s worth noting because studies have shown that more than half of a company’s performance is attributed to the underlying group.
6.) Boeing is a Bullish Barometer:Shares of airplane manufacturing juggernaut Boeing (BA - Free Report) are taking flight and are up 43.5% in the past six months. The super performance comes as the company turns around its production issues. Boeing is seeing strong momentum in deliveries and easing supply chains. In other words, airlines that are looking to expand their fleet should have no issues.
Outlook
The past few weeks have been telling for the airline industry. Top tier airline stocks shook off news that the FAA would need to ground flights several days ago. Recent TSA data and earnings reports point to a major recovery and the possibility that the industry is finally putting the pandemic behind it. With that said, investors are best served to be patient and show restraint for the time being if they are not already in the stocks. Airlines like UAL have moved vertically and are up 35% year-to-date and have made dramatic moves off their 2022 lows. In the coming weeks and months investors should look for these stocks to digest gains and offer low risk entry areas.