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On Tuesday, United Airlines will release its second-quarter profits. Outside of Washington, D.C., a Boeing 787-8 Dreamliner lands at Dulles International Airport.
Getty Images/AFP/Daniel Slim
On Monday, airline stocks plummeted on increased fears that the epidemic may resurface. Covid-19 instances are increasing due to the fast-spreading Delta variant. The rise is creating fears of new travel restrictions and a slower-than-expected rebound if countries postpone border reopenings and implement other restrictions.
According to the NYSE Arca Airline Index, the airline sector was down roughly 4%.
The American Airlines Group is a conglomerate of several airlines
(ticker: AAL) was one of the worst-affected stocks, plunging 7% to $18.40 before recovering somewhat to $19. This week, American is expected to release its second-quarter earnings, as well as other financial information.
United Airlines Holdings is a company that owns United Airlines.
(UAL) as well as
Southwest Airlines is a low-cost carrier based
(LUV). While Wall Street has come to expect continued growth in travel demand, particularly to overseas areas, the Delta variant’s spread might throw those estimates off. As the variation infects the unvaccinated—and even some of the vaccinated—new cases are increasing in nations with high vaccination rates. One fear is that persons who are asymptomatic may test positive right before a vacation, resulting in cancellations. The airline business is currently in limbo, waiting to see if government travel restrictions, which have been in place for more than a year, will be lifted. President Joe Biden said on Thursday that the US is evaluating its prohibition on noncitizens from Europe traveling to the US and will make a decision “within the next couple days.” Canada is also revising its border procedures, with the possibility of allowing vaccinated travelers from the United States as early as mid-August or September. For most public areas in France, proof of vaccination or a negative test is required. The 14-day average of new cases in the United States has increased by 140 percent, despite the fact that the number is still significantly lower than before the vaccination rollout. The prognosis for the third quarter and the rest of the year will be crucial for airline earnings. Any signs that bookings and flight capacity plans are still on the rise should be welcomed by the market; however, if companies’ forecasts change, the stocks could fall much further. United is expected to announce revenues of $5.3 billion and a net loss of $1.35 billion, or a loss of $4.01 in adjusted earnings per share, according to Wall Street. United announced plans for a massive expansion over the following two years in late June, seeking to increase capacity by 23% over 2019 levels. It plans to replace more than 200 regional jets with larger narrow-body planes starting in 2019.
Boeing
and
Airbus.
On its short-haul North American fleet, the carrier is also adding 75% extra premium seating. In addition, United hopes to save $2 billion by reducing structural expenses and improving fuel economy. American is expected to announce $7.3 billion in second-quarter sales on Thursday, resulting in a net loss of $1.3 billion, or $2.07 per share, on an adjusted basis. Domestic leisure bookings “remain very strong,” according to American, notably on core international short-haul routes in the Caribbean, Mexico, and Latin America. Business travel is also on the mend, according to American, with 47 of its top 50 corporate accounts planning a full return to travel by the end of the year. In May, the carrier claims to have returned to virtually full flights, with “load factors” of roughly 84 percent. And American says it has adjusted its fleet to maintain the same capacity as 2019 while saving $1.3 billion in structural costs this year. Southwest is also expected to report on Thursday. The low-cost leisure carrier is expected to have a solid quarter as a result of strong summer bookings. Southwest is expected to earn $3.9 billion in the second quarter, nearly double its first-quarter revenue. According to consensus estimates, the carrier will report its first operating profit since the pandemic began, with $192 million in earnings before interest, taxes, depreciation, and amortization, or Ebitda. On an adjusted basis, Wall Street still expects the airline to lose $332 million, or $0.26 per share. Southwest is boosting capacity in core leisure areas and ramping up initiatives to grab more corporate traffic. According to Seaport Global Securities analyst Daniel McKenzie, incoming CEO Bob Jordan is in charge of “billions in revenue initiatives and new product launches, as well as billions in cost cuts.” He rates the company as a buy, with a $73 price target, and describes it as a “fantastic longer-term story.” However, getting there may take some time. Southwest fell 2.5 percent to $48.69 in Monday trading, following the rest of the industry lower. Daren Fonda can be reached at daren.fonda@barrons.com./n
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