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Airline Stocks Make Merry in Tuesday's Trading: Here's Why
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The health of airline stocks (with respect to the bottom line) has always been inversely proportional to the movement of oil price. Consequently, the recent surge in oil price fueled by the invasion of Ukraine by Russia does not bode well for the airlines. In fact, oil price went through the roof on Mar 7, touching the highest level since 2008.
Amid this gloom for the aviation stocks due to the spike in one of their main input costs, Mar 15’s trading brought cheers to airline investors. The catalyst was the impressive projections (particularly on the revenue front owing to strong air-travel demand) issued by key players like American Airlines (AAL - Free Report) , Delta Air Lines (DAL - Free Report) , United Airlines (UAL - Free Report) , Southwest Airlines (LUV - Free Report) and JetBlue Airways (JBLU - Free Report) at the J.P. Morgan Industrials Conference.
The upbeat revenue projections resulted in shares of American Airlines, Delta, United Airlines, Southwest Airlines and JetBlue gaining 9.26%, 8.7%, 9.19%, 4.89% and 7.22%, respectively, on Mar 15 from the Mar 14 closing. With the constituents gaining, the NYSE ARCA Airline Index moved 5.57% northward on the day.
The Projections
Expecting to report higher revenues than originally estimated, Delta gave a bullish revenue update for the first quarter. DAL now expects March-quarter revenues to be 78% of the first-quarter 2019 actuals compared with the prior expectation of revenues being in the 72-76% range. Driven by strong air-travel demand in spring and summer, DAL expects to generate positive free cash flow in first-quarter 2022. Moreover, DAL expects pre-tax profit in March with high fuel costs being negated by stronger revenues.
However, DAL still expects to generate a pre-tax loss in the March quarter. With oil price escalating, Delta now anticipates an adjusted fuel price of $2.80 per gallon compared with the previously expected range of $2.35-$2.50. Capacity in the March quarter is now expected to be to be roughly 83% of the first-quarter 2019 actuals (earlier expectation was in the 83-85% range). Also, Delta’s management did not announce any new fuel surcharges in this era of rising fuel costs.
Per United Airlines’ management, air-travel demand was better than expected after the peak period of omicron cases. As a result of the strong demand scenario, bookings (systemwide) for travel have improved nearly 40 points since the first week of 2022. In another positive update, UAL management said that business traffic has increased in excess of 30 points since the peak of the Omicron impact in January. UAL now expects first-quarter 2022 total operating revenues to be near the better end of previous projection of a decline in the 20-25% range from the first-quarter 2019 reading.
United Airlines, currently carrying a Zacks Rank #3 (Hold), now expects first-quarter 2022 capacity to be down approximately 19% from the first-quarter 2019 actuals. The same is compared with the prior projection of a 16-18% decline. The guidance decreased due to the omicron-led woes earlier this year and more flight cancellations due to the ongoing geopolitical tensions. As a result of lower capacity, UAL now expects first-quarter 2022 non-fuel unit costs to increase roughly 18% from the first-quarter 2019 finals, compared with the previous guidance of an increase between 14% and 15%. In response to factors like rising oil price, UAL now expects its fuel price per gallon to be approximately $2.99 for first-quarter 2022 compared with $2.51 expected earlier. Capacity for the current year is expected to be down in high-single digits from the 2019 levels.
American Airlines now expects its first-quarter revenues to decline roughly 17% from first-quarter 2019 actuals, better than its previous outlook of a 20-22% fall. Like other carriers, AAL decreased its first-quarter capacity growth outlook. The metric is expected to be down 10-12% from the 8-10% decline anticipated earlier. First-quarter non-fuel unit cost is now expected to be up approximately 11-13% compared with the earlier projection of up approximately 8-10%. Fuel price per gallon is now expected in the $2.73-$2.78 range from the $2.41-$2.46 band anticipated earlier.
Also due to the strong demand scenario, Southwest Airlines now expects first-quarter operating revenues to be 8-10% below the first-quarter 2019 levels. The same is better than the prior anticipation of a 10-15% fall. Capacity is expected to be down 9-10% from the first-quarter 2019 actuals. The same indicates a marginal decrease from the earlier expectation of a 9% decline.
Like other airlines, JetBlue raised its revenue guidance while reducing its capacity outlook for first-quarter 2022 due to increasing oil price. JBLU now expects revenues to decline in the 6-9% band compared with an 11-16% decrease expected earlier. Capacity is expected to dip 1% from first-quarter 2019 actuals. The same is compared with the earlier expectation of a range of 1% decline to an increase of up to 2%.
The bullish projections for revenues by the leading carriers in the United States highlight the fact that air-travel demand is well on its way to recovery from the coronavirus woes. This leads us to believe that U.S. airlines are likely to put up a better-than-expected performance at least on the revenue front in first-quarter 2022. Moreover, with the summer season ahead, which usually mark a hectic phase for the U.S. airlines, their top lines are likely to be further augmented.
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Airline Stocks Make Merry in Tuesday's Trading: Here's Why
The health of airline stocks (with respect to the bottom line) has always been inversely proportional to the movement of oil price. Consequently, the recent surge in oil price fueled by the invasion of Ukraine by Russia does not bode well for the airlines. In fact, oil price went through the roof on Mar 7, touching the highest level since 2008.
Amid this gloom for the aviation stocks due to the spike in one of their main input costs, Mar 15’s trading brought cheers to airline investors. The catalyst was the impressive projections (particularly on the revenue front owing to strong air-travel demand) issued by key players like American Airlines (AAL - Free Report) , Delta Air Lines (DAL - Free Report) , United Airlines (UAL - Free Report) , Southwest Airlines (LUV - Free Report) and JetBlue Airways (JBLU - Free Report) at the J.P. Morgan Industrials Conference.
The upbeat revenue projections resulted in shares of American Airlines, Delta, United Airlines, Southwest Airlines and JetBlue gaining 9.26%, 8.7%, 9.19%, 4.89% and 7.22%, respectively, on Mar 15 from the Mar 14 closing. With the constituents gaining, the NYSE ARCA Airline Index moved 5.57% northward on the day.
The Projections
Expecting to report higher revenues than originally estimated, Delta gave a bullish revenue update for the first quarter. DAL now expects March-quarter revenues to be 78% of the first-quarter 2019 actuals compared with the prior expectation of revenues being in the 72-76% range. Driven by strong air-travel demand in spring and summer, DAL expects to generate positive free cash flow in first-quarter 2022. Moreover, DAL expects pre-tax profit in March with high fuel costs being negated by stronger revenues.
However, DAL still expects to generate a pre-tax loss in the March quarter. With oil price escalating, Delta now anticipates an adjusted fuel price of $2.80 per gallon compared with the previously expected range of $2.35-$2.50. Capacity in the March quarter is now expected to be to be roughly 83% of the first-quarter 2019 actuals (earlier expectation was in the 83-85% range). Also, Delta’s management did not announce any new fuel surcharges in this era of rising fuel costs.
Per United Airlines’ management, air-travel demand was better than expected after the peak period of omicron cases. As a result of the strong demand scenario, bookings (systemwide) for travel have improved nearly 40 points since the first week of 2022. In another positive update, UAL management said that business traffic has increased in excess of 30 points since the peak of the Omicron impact in January. UAL now expects first-quarter 2022 total operating revenues to be near the better end of previous projection of a decline in the 20-25% range from the first-quarter 2019 reading.
United Airlines, currently carrying a Zacks Rank #3 (Hold), now expects first-quarter 2022 capacity to be down approximately 19% from the first-quarter 2019 actuals. The same is compared with the prior projection of a 16-18% decline. The guidance decreased due to the omicron-led woes earlier this year and more flight cancellations due to the ongoing geopolitical tensions. As a result of lower capacity, UAL now expects first-quarter 2022 non-fuel unit costs to increase roughly 18% from the first-quarter 2019 finals, compared with the previous guidance of an increase between 14% and 15%. In response to factors like rising oil price, UAL now expects its fuel price per gallon to be approximately $2.99 for first-quarter 2022 compared with $2.51 expected earlier. Capacity for the current year is expected to be down in high-single digits from the 2019 levels.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
American Airlines now expects its first-quarter revenues to decline roughly 17% from first-quarter 2019 actuals, better than its previous outlook of a 20-22% fall. Like other carriers, AAL decreased its first-quarter capacity growth outlook. The metric is expected to be down 10-12% from the 8-10% decline anticipated earlier. First-quarter non-fuel unit cost is now expected to be up approximately 11-13% compared with the earlier projection of up approximately 8-10%. Fuel price per gallon is now expected in the $2.73-$2.78 range from the $2.41-$2.46 band anticipated earlier.
Also due to the strong demand scenario, Southwest Airlines now expects first-quarter operating revenues to be 8-10% below the first-quarter 2019 levels. The same is better than the prior anticipation of a 10-15% fall. Capacity is expected to be down 9-10% from the first-quarter 2019 actuals. The same indicates a marginal decrease from the earlier expectation of a 9% decline.
Like other airlines, JetBlue raised its revenue guidance while reducing its capacity outlook for first-quarter 2022 due to increasing oil price. JBLU now expects revenues to decline in the 6-9% band compared with an 11-16% decrease expected earlier. Capacity is expected to dip 1% from first-quarter 2019 actuals. The same is compared with the earlier expectation of a range of 1% decline to an increase of up to 2%.
The bullish projections for revenues by the leading carriers in the United States highlight the fact that air-travel demand is well on its way to recovery from the coronavirus woes. This leads us to believe that U.S. airlines are likely to put up a better-than-expected performance at least on the revenue front in first-quarter 2022. Moreover, with the summer season ahead, which usually mark a hectic phase for the U.S. airlines, their top lines are likely to be further augmented.