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What Awaits U.S. Airlines This Labor Day Travel Period?

·6 min read

The easing of coronavirus-related restrictions spurred air-travel demand hugely. Given this scenario of demand surge, passenger volumes are likely to go through the roof, this Labor Day weekend. According to many market watchers, the number of passengers traveling by air over the extended weekend (Labor Day is on Sep 5, the first Monday of September) is likely to reach the pre-pandemic levels or may even exceed the same, setting new records in turn. Travel during the Labor Day period generally marks the end of summer travel.

According to data from the travel booking app Hopper, 12.6 million passengers are estimated to fly in the Sep 1- Sep 5 time frame. This averages to 2.5 million travelers per day over the period. Considering this, it can be assumed that U.S. airlines will be extremely busy during this five-day period.

Management at United Airlines UAL reportedly expects 2.6 million people to travel with the airline in the Sep 1-Sep 6 time frame. If this forecast comes true, the passenger volume on UAL flights will nearly match the three-year-old Labor Day weekend figures of the pre-coronavirus era. It will be 20% more than the 2021 actuals.

American Airlines AAL, currently carrying a Zacks Rank #3 (Hold), expects to operate 26,400 scheduled flights over the Labor Day weekend, ferrying 2.5 million passengers. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. Delta Air Lines DAL anticipates to transport 2 .9 million passengers on its flights in the Sep 1-Sep 6 period. DAL intends to operate more than 25,000 flights, globally, during the period. This expected figure is more than the 2.5 million passengers, who had boarded DAL flights in the Labor Day period last year and a little less than the passenger count of 3.1 million, three years ago.

This expected surge in air-traffic during the period is highly encouraging given that the U.S. airlines are facing a plethora of challenges, which might impact air-travel during this busy period. Let’s have a look at the challenges.

U.S. airlines are currently short-staffed. With the aviation stocks trimming their labor force substantially during the peak of the pandemic, the airline industry is grappling with staffing crunch as demand bounces back. This is disrupting operations and resulting in multiple flight cancellations. However, during this Labor Day holiday period, most U.S. airlines are guaranteeing passengers — hit by flight delay or cancellation due to an airline issue — meals and hotel accommodations. The U.S. Department of Transportation launched a website to help the above passengers.

Moreover, mainly due to high fuel costs, air fares are northbound, meaning that travel during the Labor Day will be anything but pocket-friendly. Per data from Hopper, ticket prices for domestic travel during this period will be 23% more than last year’s and 20% more than the comparable period’s level, three years ago.

The expectation of high passenger volumes during the Labor Day holiday period, despite the above challenges, means that the already strong passenger revenues of U.S. airlines would be further strengthened, in turn aiding the third-quarter 2022 results. Let’s look back at the second-quarter results of airline heavyweights like American Airlines, United Airlines and Delta to highlight the passenger revenue strength.

American Airlines’ second-quarter 2022 earnings (excluding 8 cents from non-recurring items) of 76 cents per share fell short of the Zacks Consensus Estimate of 79 cents. AAL incurred a loss of $1.69 per share when air-travel demand was not as buoyant as in the current scenario.

Operating revenues of $13,422 million skyrocketed 79.5% year over year and also surpassed the Zacks Consensus Estimate of $13,409.8 million. This massive year-over-year jump reflects upbeat air-travel demand. Passenger revenues, accounting for the bulk of the top line (91.1%), increased to $12,223 million from $6,545 million a year ago.

Driven by soaring demand, as evidenced by the healthy scenario with respect to bookings, management expects AAL to deliver a profit in the September quarter too. Total revenues in the third quarter of 2022 are anticipated to be roughly 10-12% higher than the level recorded in third-quarter 2019. Management expects unit revenues to be 20-24% higher than the third-quarter 2019 actuals.

United Airlines’ second-quarter 2022 earnings (excluding 43 cents from non-recurring items) of $1.43 per share fell short of the Zacks Consensus Estimate of $1.86. In the year-ago quarter, UAL incurred a loss of $3.91 per share when air-travel demand was not as buoyant as in the current scenario. The second quarter of 2022 was the first profitable quarter at UAL since the onset of the pandemic.

Operating revenues of $12,112 million beat the Zacks Consensus Estimate of $12,033.7 million and increased more than 100% year over year owing to upbeat air-travel demand. The optimistic air-travel demand scenario is also evident from the fact that total operating revenues increased 6.2% from second-quarter 2019 levels. Total operating revenues in the third quarter are likely to increase 11% from the September-quarter level of 2019.

Delta's earnings (excluding 29 cents from non-recurring items) of $1.44 per share fell short of the Zacks Consensus Estimate of $1.71. In the year-ago quarter, Delta incurred a loss of $1.07 per share. DAL’s revenues came in at $13,824 million, which not only beat the Zacks Consensus Estimate of $13,608.9 million but also soared 94% from the year-ago quarter’s figure as air-travel demand rebounded from the pandemic lows.

The uptick in air-travel demand in the United States can be gauged from the fact that 75.9% of second-quarter 2022 passenger revenues came from the domestic markets. The buoyant air-travel demand scenario is also evident from the fact that total operating revenues at Delta increased 10% from the second-quarter 2019 levels. DAL management expects total revenues for third-quarter 2022 to increase in the 1-5% band from the third-quarter 2019 levels.

A strong Labor Day performance, which seems likely, would help AAL, UAL and DAL achieve (or even exceed) the bullish top line projections for the third quarter of 2022.

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