Airline recovery expected as investors wait for carriers to report Q2 earnings

·3 min read

U.S. airlines will begin reporting second quarter earnings this week after experiencing what Cowen senior research analyst Helane Becker calls a perfect storm of domestic leisure travel.

"We know that domestic leisure is very strong, and that we're back to pre-pandemic levels," Becker told Yahoo Finance Live.

Delta Air Lines (DAL) reports this Wednesday followed next week by United Airlines (UAL) on July 20, with American Airlines (AAL) and Southwest Airlines (LUV) reporting on July 22. Becker, in a recent note to her clients, wrote the airlines should report higher than expected revenue but she predicts misses on earnings per share due to rising prices for jet fuel.

"Our view is it's about as good as it gets," Becker said describing the airline industry's second quarter.

The Transportation Security Administration (TSA) is screening roughly 2 million passengers a day at the nations airports. While leisure travel demand has recovered from the COVID-19 pandemic, Becker said demand for business travel remains depressed, down 65% to 70%, compared to 2019. However, Becker expects business travel to accelerate after Labor Day.

"I think as people go back to work, they want to see their clients, it will have been a long time since they saw anybody other than on Zoom calls. I think we're getting to the point where people are tired of these Zoom calls," Becker said. Cowen estimates business travel will end the year down 45% to 50%, compared to 2019.

'International obviously is the big question mark'

Becker said international travel is still difficult for the airlines, down almost 75%, because the United States and some popular international destinations require COVID-19 testing before anyone can enter.

"International obviously is the big question mark. Countries have to reopen," Becker said.

The European Union just recently added the United States to its list of countries from which passengers are welcome although some countries still require people to quarantine upon arrival. The Netherlands and France announced last month they would allow visitors from the U.S. without forcing them to quarantine. In anticipation of the reopening, Delta added several daily flights last week from the U.S. to Amsterdam, Athens, Paris and Rome. Travelers to London and other parts of the UK still have to quarantine upon arrival.

CEOs from the major airlines have been lobbying European regulators to open up. United's CEO Scott Kirby said international travel used to be a third of United's business but most destinations remain closed. "And as they're starting to open, we see huge demand," Kirby said at the Annual Bernstein Strategic Decisions Conference last month. "Every time another country in Europe opens up, it's Katy bar the door for bookings and they go through the roof, again indicating huge desire for travel."

Becker said losing international travel has kept airline stocks from rising during the second quarter. Shares of American fell 11% during the second quarter, while Delta and United shares were down 10%. "I think part of it, the catalyst for the shares to move higher really has to be international markets reopening," she said.

Cowen expects international travel to remain depressed in the third quarter. "And it's obviously annoying every time we hear about another variant of the COVID virus. I think we just need to move past it and understand that we're going to be living with this for a really long time and we have to open our borders and move on," Becker said.

Adam Shapiro is co-anchor of Yahoo Finance Live 3pm to 5pm. Follow him on Twitter @Ajshaps

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