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Airlines Mired in Multiple Headwinds: Any Silver Lining Ahead?
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The recent spike in coronavirus cases in certain parts of the United States has eclipsed the modest uptick in air-travel demand (particularly on the leisure front). Even the Thanksgiving holiday phase failed to lift air-travel demand to the expected levels as many people are paying heed to the Centers for Disease Control and Prevention’s advice to avoid Thanksgiving travel in view of the upsurge in cases.
Airlines Issue Downbeat Updates
In the wake of the renewed jump in COVID-19 cases in the United States, there has been an obvious slowdown in air-travel demand. The grim scenario is reflected in the outlooks provided by the carriers. With bookings being hampered, American Airlines (AAL - Free Report) expects fourth-quarter 2020 average daily cash burn at the upper end of its guided range of $25-$30 million.
Due to the same reason, this Long Island City, NY-based JetBlue Airways (JBLU - Free Report) expects revenues to plunge approximately 70% year over year from its earlier expectation of an approximate decline of 65%. Management believes that the recovery in demand and the company’s revenue rebound will be “non-linear through the fourth quarter and beyond”.
Delta Air Lines’ (DAL - Free Report) CEO Ed Bastian echoed similar concerns in a memo to the company’s employees. Bastian was quoted saying: “Revenues are slowly coming back, but we still expect to be at just 30 percent of our 2019 levels for the fourth quarter. That slowdown has pressured our daily cash burn by about $2 million per day and we’re now expecting to end up around $12 million to $14 million per day for the quarter. “
Last month, United Airlines’ (UAL - Free Report) management announced that the carrier witnessed a deceleration in system bookings and an uptick in cancellations as a result of the recent jump in the coronavirus cases across the United States. Alaska Air Group (ALK - Free Report) too conveyed similar fears.
Job Scenario Bleak
Following the expiry of the CARES Act on Sep 30, carriers like American Airlines and United Airlines were forced to shrink their respective workforces. With a second round of stimulus still on paper, airlines continue to suffer the overstaffing problems in the face of suppressed demand. This, in turn, raises the alarm about more possible job cuts.
.As a consequence, Southwest Airlines (LUV - Free Report) reportedly warned that in excess of 6,000 employees across various workgroups might be given marching orders next year. If the layoffs are eventually sanctioned by its authorities, then this drastic decision by the Dallas-based carrier will be a first-time in its history.
Moreover, pilots at Delta recently voted in favor of accepting reduced pays in a bid to save their jobs until 2022.
Is There Light at the End of the Tunnel?
Despite the above-mentioned headwinds, airline stocks have had an encouraging run on the bourse. Evidently, the Zacks Airline industry has gained 30.5% over the past three months, way above the S&P 500’s 8.9% appreciation in the same time period.
Upbeat updates on vaccine candidates developed by various companies to combat the coronavirus were the primary reason behind the uptick in aviation stock prices despite the prevalent economic turbulence triggered by the deadly pandemic.
Airline companies are hoping that once the vaccine is made available in the market, it will propel people to resort to air travel without the fear of infection looming on. This, in turn, should boost passenger revenues.
Moreover, the prospects of another stimulus package look brighter following President-elect Joe Biden’s statements in its favor. In the event of the package finally coming through, airlines can breathe a huge sigh of relief as their job-cut plans will then be refrained from implementation.
Additionally, the fact that the Federal Aviation Administration (FAA) finally cleared the decks for Boeing's 737 MAX jets to resume flying after being grounded since March 2019, is another positive for the airline space. Following FAA’s decision, American Airlines will be the first U.S. carrier to restart its commercial flight services plying Boeing's 737 MAX jets. This Fort Worth, TX-based carrier, currently carrying a Zacks Rank #3 (Hold), will start operating the jets starting Dec 29, 2020 on the Miami-New York route.
With the planes ready to take off again in the Latin American sky as well following the Brazilian regulatory officials orders, Gol Linhas will be the first airline company in the world to resume Boeing 737 Max passenger flights. Gol will commercially operate the jets in its domestic network from Dec 9, 2020
In view of the above tailwinds, we believe that it is not all doom and gloom for the airline stocks.
Biggest Tech Breakthrough in a Generation
Be among the early investors in the new type of device that experts say could impact society as much as the discovery of electricity. Current technology will soon be outdated and replaced by these new devices. In the process, it’s expected to create 22 million jobs and generate $12.3 trillion in activity.
A select few stocks could skyrocket the most as rollout accelerates for this new tech. Early investors could see gains similar to buying Microsoft in the 1990s. Zacks’ just-released special report reveals 8 stocks to watch. The report is only available for a limited time.
Image: Bigstock
Airlines Mired in Multiple Headwinds: Any Silver Lining Ahead?
The recent spike in coronavirus cases in certain parts of the United States has eclipsed the modest uptick in air-travel demand (particularly on the leisure front). Even the Thanksgiving holiday phase failed to lift air-travel demand to the expected levels as many people are paying heed to the Centers for Disease Control and Prevention’s advice to avoid Thanksgiving travel in view of the upsurge in cases.
Airlines Issue Downbeat Updates
In the wake of the renewed jump in COVID-19 cases in the United States, there has been an obvious slowdown in air-travel demand. The grim scenario is reflected in the outlooks provided by the carriers. With bookings being hampered, American Airlines (AAL - Free Report) expects fourth-quarter 2020 average daily cash burn at the upper end of its guided range of $25-$30 million.
Due to the same reason, this Long Island City, NY-based JetBlue Airways (JBLU - Free Report) expects revenues to plunge approximately 70% year over year from its earlier expectation of an approximate decline of 65%. Management believes that the recovery in demand and the company’s revenue rebound will be “non-linear through the fourth quarter and beyond”.
Delta Air Lines’ (DAL - Free Report) CEO Ed Bastian echoed similar concerns in a memo to the company’s employees. Bastian was quoted saying: “Revenues are slowly coming back, but we still expect to be at just 30 percent of our 2019 levels for the fourth quarter. That slowdown has pressured our daily cash burn by about $2 million per day and we’re now expecting to end up around $12 million to $14 million per day for the quarter. “
Last month, United Airlines’ (UAL - Free Report) management announced that the carrier witnessed a deceleration in system bookings and an uptick in cancellations as a result of the recent jump in the coronavirus cases across the United States. Alaska Air Group (ALK - Free Report) too conveyed similar fears.
Job Scenario Bleak
Following the expiry of the CARES Act on Sep 30, carriers like American Airlines and United Airlines were forced to shrink their respective workforces. With a second round of stimulus still on paper, airlines continue to suffer the overstaffing problems in the face of suppressed demand. This, in turn, raises the alarm about more possible job cuts.
.As a consequence, Southwest Airlines (LUV - Free Report) reportedly warned that in excess of 6,000 employees across various workgroups might be given marching orders next year. If the layoffs are eventually sanctioned by its authorities, then this drastic decision by the Dallas-based carrier will be a first-time in its history.
Moreover, pilots at Delta recently voted in favor of accepting reduced pays in a bid to save their jobs until 2022.
Is There Light at the End of the Tunnel?
Despite the above-mentioned headwinds, airline stocks have had an encouraging run on the bourse. Evidently, the Zacks Airline industry has gained 30.5% over the past three months, way above the S&P 500’s 8.9% appreciation in the same time period.
Upbeat updates on vaccine candidates developed by various companies to combat the coronavirus were the primary reason behind the uptick in aviation stock prices despite the prevalent economic turbulence triggered by the deadly pandemic.
Airline companies are hoping that once the vaccine is made available in the market, it will propel people to resort to air travel without the fear of infection looming on. This, in turn, should boost passenger revenues.
Moreover, the prospects of another stimulus package look brighter following President-elect Joe Biden’s statements in its favor. In the event of the package finally coming through, airlines can breathe a huge sigh of relief as their job-cut plans will then be refrained from implementation.
Additionally, the fact that the Federal Aviation Administration (FAA) finally cleared the decks for Boeing's 737 MAX jets to resume flying after being grounded since March 2019, is another positive for the airline space. Following FAA’s decision, American Airlines will be the first U.S. carrier to restart its commercial flight services plying Boeing's 737 MAX jets. This Fort Worth, TX-based carrier, currently carrying a Zacks Rank #3 (Hold), will start operating the jets starting Dec 29, 2020 on the Miami-New York route.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
With the planes ready to take off again in the Latin American sky as well following the Brazilian regulatory officials orders, Gol Linhas will be the first airline company in the world to resume Boeing 737 Max passenger flights. Gol will commercially operate the jets in its domestic network from Dec 9, 2020
In view of the above tailwinds, we believe that it is not all doom and gloom for the airline stocks.
Biggest Tech Breakthrough in a Generation
Be among the early investors in the new type of device that experts say could impact society as much as the discovery of electricity. Current technology will soon be outdated and replaced by these new devices. In the process, it’s expected to create 22 million jobs and generate $12.3 trillion in activity.
A select few stocks could skyrocket the most as rollout accelerates for this new tech. Early investors could see gains similar to buying Microsoft in the 1990s. Zacks’ just-released special report reveals 8 stocks to watch. The report is only available for a limited time.
See 8 breakthrough stocks now>>