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4 U.S. Airline Stocks at Risk as UK Opts for Brexit
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Putting all speculation to rest, the Britons have voted in favor of exiting the European Union. Results of the U.K. referendum revealed that 51.9% of the votes (17,410,742) were cast in favor of Brexit while 48.1% (16,141,242) opposed the notion.
Going into details, 53.2%, 38%, 51.7% and 44.3% of the participants in England, Scotland, Wales and Northern Ireland, respectively, cast their votes in support of leaving the bloc after over four decades. As had been widely expected, the Brexit decision has created ripples throughout the world, rattling the global financial market.
Following Britain’s decision to depart, the pound has taken a beating, slumping to its lowest point in 30 years. Also, the FTSE 100 tanked over 8% immediately after the commencement of trading. The impact has been so severe that Prime Minister David Cameron announced his decision to resign by October. The effects of Brexit are expected to catastrophic as far as British markets are concerned, at least in the short term.
US Markets to Feel the Tremor
In such a scenario, the ripple effects are expected to be felt across the Atlantic. With Britain accounting for 10% of revenues for 30 S&P 500 players, things do not seem to be rosy for US stocks. In fact, firms in the U.S. with exposure to Britain are likely to hit badly with the tumbling pound reducing U.S. earnings on repatriating the income.
Airlines to Face the Brunt?
The airline sector is already grappling with the effects of the recent terror attacks – the mass shooting at a nightclub in Orlando and the explosion at the Shanghai Pudong airport. Fears of travel demand waning with such attacks on the rise have caused carriers like American Airlines Group (AAL - Free Report) , JetBlue Airways Corp. (JBLU - Free Report) and Alaska Air Group, Inc. (ALK - Free Report) to trade near/at their 52-week lows. Apart from this, airlines are struggling with respect to unit revenues.
The tough times for airlines is exemplified by the NYSE ARCA Airline index declining over 4% since the Orlando shootings. Moreover, the bearish effect on the industry can be gauged from the from the fact that the “Trans-Airline” sector currently has a Zacks Industry Rank #204 – placing it in the bottom 1/3rd of the 260+ industry groups. The Brexit decision has worsened matters for U.S. airlines with exposure to Britain.
In fact, European airlines like British Airways and Ryanair Holdings (RYAAY - Free Report) might face the brunt with leisure and business travel demand taking a hit. Moreover, Britain, by virtue of its EU membership, has been part of the EU's single aviation market till today. Consequently, carriers of member states could fly freely to/within members. Now with Britain exiting EU, the entire issue has become complex.
What’s in Store for US Carriers?
We expect U.S. airlines to be hit by the Brexit results too. In fact, carriers with significant exposure are likely to feel the pinch more than others. The 2007 open skies agreement had facilitated the travel of U.S. through the EU apart from encouraging tie-ups with their European counterparts. Now with Brexit materializing, the future direction to be taken by the EU–US Open Skies Agreement is anybody’s guess. For now, we have identified 4 U.S. carriers that could be at risk following UK’s vote to leave the EU.
American Airlines Group Inc: Based in Fort Worth, Texas, the carrier has high exposure to Britain mainly due to its partnership with British Airways. The partnership apart, the carrier apparently has a higher exposure to UK than its peers with respect to capacity with 6.2% of round-trip capacity focused on the nation.
Delta Air Lines, Inc. (DAL - Free Report) : Based in Atlanta, GA, the carrier operates quite a number of flights to Britain and has a significant stake in British airline –Virgin Atlantic. Last month, Delta strengthened its ties with Virgin Atlantic. The carriers altered their respective schedules for the summer of 2017 to facilitate travel between the U.S. and the U.K. The introduction of four weekly flights connecting Portland and London from May 26, 2017, was the highlight of the program. The Brexit vote has tossed the future of this partnership.
United Continental Holdings (UAL - Free Report) : This Chicago-based carrier flies extensively to the U.K. which could hurt its profits substantially. In fact, the carrier is likely to be affected the most according to an Investors’ News Daily report.
Alaska Air Group: This Seattle, WA-based owner of Alaska Airlines might also feel the pinch of Britain’s departure. The carrier has a partnership with British Airways for some of its key routes. Usually passengers travelling domestically with Alaska book the carry forward trip on one of its partner airlines such as British Airways. With the pound losing value with respect to the U.S. dollar, traffic from Britain will is likely to suffer. As a result, Alaska’s revenue and volumes would decline on domestic routes which serve as connectors for trans-Atlantic destinations.
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4 U.S. Airline Stocks at Risk as UK Opts for Brexit
Putting all speculation to rest, the Britons have voted in favor of exiting the European Union. Results of the U.K. referendum revealed that 51.9% of the votes (17,410,742) were cast in favor of Brexit while 48.1% (16,141,242) opposed the notion.
Going into details, 53.2%, 38%, 51.7% and 44.3% of the participants in England, Scotland, Wales and Northern Ireland, respectively, cast their votes in support of leaving the bloc after over four decades. As had been widely expected, the Brexit decision has created ripples throughout the world, rattling the global financial market.
Following Britain’s decision to depart, the pound has taken a beating, slumping to its lowest point in 30 years. Also, the FTSE 100 tanked over 8% immediately after the commencement of trading. The impact has been so severe that Prime Minister David Cameron announced his decision to resign by October. The effects of Brexit are expected to catastrophic as far as British markets are concerned, at least in the short term.
US Markets to Feel the Tremor
In such a scenario, the ripple effects are expected to be felt across the Atlantic. With Britain accounting for 10% of revenues for 30 S&P 500 players, things do not seem to be rosy for US stocks. In fact, firms in the U.S. with exposure to Britain are likely to hit badly with the tumbling pound reducing U.S. earnings on repatriating the income.
Airlines to Face the Brunt?
The airline sector is already grappling with the effects of the recent terror attacks – the mass shooting at a nightclub in Orlando and the explosion at the Shanghai Pudong airport. Fears of travel demand waning with such attacks on the rise have caused carriers like American Airlines Group (AAL - Free Report) , JetBlue Airways Corp. (JBLU - Free Report) and Alaska Air Group, Inc. (ALK - Free Report) to trade near/at their 52-week lows. Apart from this, airlines are struggling with respect to unit revenues.
The tough times for airlines is exemplified by the NYSE ARCA Airline index declining over 4% since the Orlando shootings. Moreover, the bearish effect on the industry can be gauged from the from the fact that the “Trans-Airline” sector currently has a Zacks Industry Rank #204 – placing it in the bottom 1/3rd of the 260+ industry groups. The Brexit decision has worsened matters for U.S. airlines with exposure to Britain.
In fact, European airlines like British Airways and Ryanair Holdings (RYAAY - Free Report) might face the brunt with leisure and business travel demand taking a hit. Moreover, Britain, by virtue of its EU membership, has been part of the EU's single aviation market till today. Consequently, carriers of member states could fly freely to/within members. Now with Britain exiting EU, the entire issue has become complex.
What’s in Store for US Carriers?
We expect U.S. airlines to be hit by the Brexit results too. In fact, carriers with significant exposure are likely to feel the pinch more than others. The 2007 open skies agreement had facilitated the travel of U.S. through the EU apart from encouraging tie-ups with their European counterparts. Now with Brexit materializing, the future direction to be taken by the EU–US Open Skies Agreement is anybody’s guess. For now, we have identified 4 U.S. carriers that could be at risk following UK’s vote to leave the EU.
American Airlines Group Inc: Based in Fort Worth, Texas, the carrier has high exposure to Britain mainly due to its partnership with British Airways. The partnership apart, the carrier apparently has a higher exposure to UK than its peers with respect to capacity with 6.2% of round-trip capacity focused on the nation.
Delta Air Lines, Inc. (DAL - Free Report) : Based in Atlanta, GA, the carrier operates quite a number of flights to Britain and has a significant stake in British airline –Virgin Atlantic. Last month, Delta strengthened its ties with Virgin Atlantic. The carriers altered their respective schedules for the summer of 2017 to facilitate travel between the U.S. and the U.K. The introduction of four weekly flights connecting Portland and London from May 26, 2017, was the highlight of the program. The Brexit vote has tossed the future of this partnership.
United Continental Holdings (UAL - Free Report) : This Chicago-based carrier flies extensively to the U.K. which could hurt its profits substantially. In fact, the carrier is likely to be affected the most according to an Investors’ News Daily report.
Alaska Air Group: This Seattle, WA-based owner of Alaska Airlines might also feel the pinch of Britain’s departure. The carrier has a partnership with British Airways for some of its key routes. Usually passengers travelling domestically with Alaska book the carry forward trip on one of its partner airlines such as British Airways. With the pound losing value with respect to the U.S. dollar, traffic from Britain will is likely to suffer. As a result, Alaska’s revenue and volumes would decline on domestic routes which serve as connectors for trans-Atlantic destinations.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>