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5 Reasons Airlines are Set for a Turbulent-Free 2023
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Turbulent Times for Airlines
It turns out that transporting thousands of passengers around the world in a metal tube is no easy task. The airline industry is one of the most complicated industries to predict on Wall Street. Like most industries, airlines have inputs and outputs, the sum of which ultimately leads to profitability or large losses. Over the past few years, airlines have had to contend with the following:
· A Global Pandemic: Shrank demand to nearly zero and decreased the number of employees.
· Complex Geopolitical Circumstances:The War in Ukraine drove crude oil prices to near triple digits before pulling back last year.
· Lack of Skilled Employees:Many pilots in the industry aged, some quit, and others were laid off during the pandemic.
· Outdated Airplanes:Supply chain issues and delays due to safety concerns from aircraft manufacturing giant Boeing (BA) led to a lack of airplanes.
Despite the many challenges mentioned above, the airline industry is showing signs of life. The U.S. Global Jets ETF (JETS - Free Report) is used by investors as a proxy for the industry:
Image Source: Zacks Investment Research
Clear Skies Ahead?
Below I will lay out 5 reasons why the tough times experienced by airlines in recent years may finally be over:
1. A Return to Profitability: International airlines survived massive losses during the pandemic and are now back to earning healthy profits. For example, United Airlines (UAL - Free Report) lost $28 per share in 2020. In 2022, UAL made $2.50 per share.
Image Source: Zacks Investment Research
Panamanian airlineCopa Holdings (CPA - Free Report) and other international airlines show a similar EPS trajectory:
Image Source: Zacks Investment Research
2. Rising EPS Estimates: Airline providers such as American Airlines (AAL - Free Report) ,Ryanair (RYAAY - Free Report) , and United Airlines have rising consensus estimates moving forward. AAL and UAL also have positive Expected Surprise Prediction (ESP) scores suggesting that they are likely to surprise earnings to the upside the next time they report. Delta (DAL - Free Report) is one of the few airline stocks with a negative ESP score. That said, Delta is coming off a blockbuster quarter where EPS rocketed 573%.
3. Oil Showing Signs of Lagging:The longer oil prices lag, the larger the headwind for the airline industry. Crude oil and oil-related stocks are beginning to exhibit relative weakness. For instance, over the past month, the S&P 500 Index is +9.40% while Exxon Mobil (XOM - Free Report) is slightly lower.
Image Source: Zacks Investment Research
4. Recovery to Pre-pandemic Levels: Recently, Boeing Ceo Dave Calhoun confirmed his aspirations to return to pre-pandemic aircraft production levels. Airline giants like United are planning to hire thousands of pilots in 2023 to increase staff – with no training capacity constraints. Meanwhile, air travel occupancy levels have recovered fully.
5. Drastically Improving Technical Picture:
Uptrend Resumed: After five failed attempts to re-take the 200-day moving average in the past two years, the JETS ETF decisively broke above the line in 2023 – signaling a distinct change in character.
Image Source: Zacks Investment Research
Post Earnings Drift Potential / Bull Flags: Because markets are inefficient, stocks tend to trend after reporting stellar earnings like most airlines just did. Stocks like UAL rocketed higher in early 2023 and have been consolidating and digesting gains in a bullish manner since.
Image Source: Zacks Investment Research
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5 Reasons Airlines are Set for a Turbulent-Free 2023
Turbulent Times for Airlines
It turns out that transporting thousands of passengers around the world in a metal tube is no easy task. The airline industry is one of the most complicated industries to predict on Wall Street. Like most industries, airlines have inputs and outputs, the sum of which ultimately leads to profitability or large losses. Over the past few years, airlines have had to contend with the following:
· A Global Pandemic: Shrank demand to nearly zero and decreased the number of employees.
· Complex Geopolitical Circumstances:The War in Ukraine drove crude oil prices to near triple digits before pulling back last year.
· Lack of Skilled Employees:Many pilots in the industry aged, some quit, and others were laid off during the pandemic.
· Outdated Airplanes:Supply chain issues and delays due to safety concerns from aircraft manufacturing giant Boeing (BA) led to a lack of airplanes.
Despite the many challenges mentioned above, the airline industry is showing signs of life. The U.S. Global Jets ETF (JETS - Free Report) is used by investors as a proxy for the industry:
Image Source: Zacks Investment Research
Clear Skies Ahead?
Below I will lay out 5 reasons why the tough times experienced by airlines in recent years may finally be over:
1. A Return to Profitability: International airlines survived massive losses during the pandemic and are now back to earning healthy profits. For example, United Airlines (UAL - Free Report) lost $28 per share in 2020. In 2022, UAL made $2.50 per share.
Image Source: Zacks Investment Research
Panamanian airlineCopa Holdings (CPA - Free Report) and other international airlines show a similar EPS trajectory:
Image Source: Zacks Investment Research
2. Rising EPS Estimates: Airline providers such as American Airlines (AAL - Free Report) , Ryanair (RYAAY - Free Report) , and United Airlines have rising consensus estimates moving forward. AAL and UAL also have positive Expected Surprise Prediction (ESP) scores suggesting that they are likely to surprise earnings to the upside the next time they report. Delta (DAL - Free Report) is one of the few airline stocks with a negative ESP score. That said, Delta is coming off a blockbuster quarter where EPS rocketed 573%.
3. Oil Showing Signs of Lagging:The longer oil prices lag, the larger the headwind for the airline industry. Crude oil and oil-related stocks are beginning to exhibit relative weakness. For instance, over the past month, the S&P 500 Index is +9.40% while Exxon Mobil (XOM - Free Report) is slightly lower.
Image Source: Zacks Investment Research
4. Recovery to Pre-pandemic Levels: Recently, Boeing Ceo Dave Calhoun confirmed his aspirations to return to pre-pandemic aircraft production levels. Airline giants like United are planning to hire thousands of pilots in 2023 to increase staff – with no training capacity constraints. Meanwhile, air travel occupancy levels have recovered fully.
5. Drastically Improving Technical Picture:
Uptrend Resumed: After five failed attempts to re-take the 200-day moving average in the past two years, the JETS ETF decisively broke above the line in 2023 – signaling a distinct change in character.
Image Source: Zacks Investment Research
Post Earnings Drift Potential / Bull Flags: Because markets are inefficient, stocks tend to trend after reporting stellar earnings like most airlines just did. Stocks like UAL rocketed higher in early 2023 and have been consolidating and digesting gains in a bullish manner since.
Image Source: Zacks Investment Research