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The Sky Appears Sunnier Ahead for U.S. Airlines: Here's Why

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After being battered by the coronavirus-induced passenger revenue weakness in 2020, the advent of 2021 saw things on the upswing for the U.S.-based airline stocks. With ramped-up vaccination drives, air-travel demand in the United States is picking up its pace (particularly on the leisure front). In fact, per a Business Standard article, the Centers for Disease Control and Prevention (CDC) stated that 70% of adults in the United States is likely to receive at least one dose of vaccine by Jul 4. Notably, per CDC data, more than 50% of the U.S. population already received a single COVID-19 vaccination shot as of May 30, 2021.

Having been administered the coronavirus jabs, people are naturally feeling safer to take to the skies as the fear of catching the infection from a fellow-passenger is on the wane. The healthy state of air travel in the United States can be gauged from the Transportation Security Administration’s (TSA) screening of 1.96 million people on May 30, heading into the Memorial Day weekend.

The recent bullish projections provided by the U.S. airlines are indicative of the fact that they are likely to fly high going forward.

Let’s delve into the upbeat forecasts.

Driven by the improved air-travel demand, management at Southwest Airlines (LUV - Free Report) , currently carrying a Zacks Rank #3 (Hold), expects average core cash burn in the $1-$3 million band per day for the current quarter. The guidance is better than the previous estimate for the metric, which was in the $2-4 million range. Notably, the average core cash burn excludes changes in working capital. The company still expects to achieve a breakeven average core cash flow or better in June 2021. Management further stated that operating revenues, which declined approximately 42% in April 2021 from its April 2019 levels, improved from the March reading owing to recovery in leisure travel demand. The company is also currently witnessing improvements in travel demand and bookings for business.

You can see the complete list of today’s Zacks #1 Rank  (Strong Buy)  stocks here.

Management at Alaska Air Group (ALK - Free Report) expects cash flow from operations for the June quarter in the $550-$650 million range. This suggests an improvement from the previous expectation in the $450-$550 million band. Hawaiian Holdings’ (HA - Free Report) management too recently issued an encouraging revenue forecast for the second quarter, citing strong demand for air travel in its markets across North America. The carrier expects second-quarter revenues to decline in the 42-46% range from the second-quarter 2019 actuals. The fresh outlook is better than the previous prediction of a 45-50% decline. Owing to a stronger revenue scenario, the company now predicts adjusted EBITDAAR (Earnings before interest, taxes, depreciation, amortization and restructuring or rent costs) between a negative $40 million and a negative $10 million compared with its prior anticipation of a negative $70 million and a negative $20 million.

Echoing similar sentiments, United Airlines’ (UAL - Free Report) management stated in a SEC filing that as of May 25, 2021, “consolidated yields on tickets issued since the beginning of May 2021 for travel in the second quarter of 2021 have reached levels similar to 2019 with domestic leisure yields exceeding 2019 levels for the same time period.”

Consequently, the company now expects Total Revenue per Available Seat Mile or TRASM to decline approximately 12% in the second quarter of 2021 from the reading registered for the same period in 2019. This is an improvement from the carrier’s previous view of a decrease of around 20%. Owing to the improved yield performance, United Airlines estimates adjusted EBITDA margin for the second quarter to be around (11%), better than the previous expectation of about (20%).

Airlines Add Routes

In view of the uptick in air-travel demand, U.S. airlines expect demand to surge further in the summer season. To meet this much-anticipated demand swell, carriers are broadening their network to include additional routes to hot tourist destinations.

For example, Allegiant Travel Company (ALGT - Free Report) aims to start six new nonstop services in the summer of 2021, offering customers connectivity to premier destinations in Florida among other places. Similarly, JetBlue Airways (JBLU - Free Report) aims to expand its footprint in Connecticut and South Florida with a new service between Hartford, CT and Miami, FL. Flights connecting Bradley International Airport and Miami International Airport (MIA) will operate daily from Jun 24, 2021. Expecting this demand uptick to continue this summer, United Airlines intends to boost its domestic schedule for July by adding daily flights in excess of 400.

In fact, Delta Air Lines (DAL - Free Report) is looking to widen its international network as well. The carrier plans to launch a nonstop service connecting New York-JFK with Croatia’s Dubrovnik Airport, starting Jul 2. This marks the airline’s first nonstop service to Croatia. The flight will be operational four times weekly. Further, the United Airlines aims to resume services to Spain come July.

In view of the bright outlooks, driven by healthy booking trends and the airlines’ decision to expand their schedules, it is widely expected that the U.S. aviation stocks will soar higher in the coming months after being grounded due to coronavirus woes in 2020.

Watch this space for more updates on the current buoyancy in air-travel demand in the United States.

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