The year 2020, which is in its last leg, has been anything but fruitful for stocks in the airline space. Agreed that most sectors were hurt by the advent of coronavirus, which was declared a pandemic by the World Health Organization in March, the bitter truth is that the aviation industry still remains one of the worst-affected areas in the investment world.
Passenger revenues, which constitute bulk of the top line for the airline companies, have been drastically low do far as air-travel demand took a severe beating due to lockdowns and travel restrictions.
The sorry state of affairs can be gauged from the International Air Transport Association’s (IATA) gloomy forecast for 2020.
Per the IATA, the industry is expected to incur a staggering net loss of $118.5 billion in 2020. Passenger revenues are anticipated to be a mere $191 billion compared with $612 billion recorded in 2019. This gigantic fall in passenger revenues is mainly due to the year-over-year anticipated plunge of 66% in overall passenger demand for the current year.
Region-wise, North American carriers are projected to endure maximum net loss to the tune of $45.8 billion in these coronavirus-ravaged times with traffic plummeting 66%. European carriers including the likes of
Ryanair Holdings ( RYAAY Quick Quote RYAAY - Free Report) are expected to incur $26.9 billion losses with traffic sinking 70%. Latin American carriers with the likes of Copa Holdings ( CPA Quick Quote CPA - Free Report) and Gol Linhas ( GOL Quick Quote GOL - Free Report) are projected to lose $5 billion with traffic tanking 60%. Moreover, those in the Asia-Pacific area are expected to suffer losses amounting to $31.7 billion in 2020. Carriers in the Middle East and Africa are likely to incur losses worth $7.1 billion and $2 billion, respectively, during the current year. Vaccine News Buoys Airline Stocks
With the pandemic still claiming thousands of lives across the globe, apart from infecting many more, multiple medical companies are spending billions on developing an effective vaccine to combat the dreaded disease. In this respect,
Pfizer ( PFE Quick Quote PFE - Free Report) and BioNTech’s COVID-19 vaccine won the regulatory emergency approval in many countries including the UK and the United States after displaying a high degree of efficacy in clinical trials. Following this agency nod, vaccination started in the concerned countries.
More recently, Moderna’s vaccine was also okayed by the FDA for emergency use. It goes without saying that the company’s vaccine was found to be highly effective in its clinical trials. The Moderna vaccine will be shortly administered in the United States.
In fact, the positive updates on the above vaccines have led the Zacks
Airline industry gain 4.7% over the past month, outperforming the S&P 500 Index’s 3.5% appreciation in the same time period.
The principal gainers from the airline space during this period were
Mesa Air Group ( MESA Quick Quote MESA - Free Report) , American Airlines ( AAL Quick Quote AAL - Free Report) , Spirit Airlines ( SAVE Quick Quote SAVE - Free Report) and United Airlines ( UAL Quick Quote UAL - Free Report) , all currently carrying a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here .
The price performance of the stocks over the past month is given in the chart below.
Will the Uptick Continue in 2021?
The year 2021 is expected to be brighter for the airlines in view of the above vaccines and many more in various stages of development. The availability of the vaccines is a major boost to the airline companies, which are pinning hopes on people’s return to air travel, once vaccinated, as there will be no fear of infection looming on. This, in turn, should boost passenger revenues.
Another encouraging development for the airlines is the agreement reached by the U.S. Congress to approve $900 billion for a fresh coronavirus-relief package. The tentative deal inked yesterday comes after months of negotiations following the expiry of the CARES Act on Sep 30.
The new package includes a $15-billion grant to the U.S. airlines toward new payroll assistance, per a
BNN Bloomberg report. Notably, carriers like American Airlines and United Airlines shrunk their respective workforces due to the suppressed demand scenario following the expiry of the CARES Act on Sep 30. Now the new payroll aid allows them to call back the laid-off employees.
Apart from the upbeat news on the airline jobs front, that 2021 is likely to see an improvement for the aviation industry compared to 2020 can be gauged from IATA’s bullish forecast. Total loss for the industry is envisioned to come down to $38.7 billion next year. IATA anticipates 2.8 billion people taking to the skies in 2021, one billion more than the current-year expectation. Load factor (% of seats filled by passengers) is likely to surge to 72.7% next year from the projection of 65.5% for 2020.
Even though passenger revenues are unlikely to return to the pre-coronavirus levels in 2021 itself, we expect the stocks in the airline domain to have a much better time next year owing to the aforementioned tailwinds.
Zacks Top 10 Stocks for 2021
In addition to the stocks discussed above, would you like to know about our 10 top tickers for the entirety of 2021?
These 10 are painstakingly hand-picked from over 4,000 companies covered by the Zacks Rank. They are our primary picks to buy and hold. Start Your Access to the New Zacks Top 10 Stocks >>