U.S. Airlines Make Hay in Yesterday's Trading: Here's Why
Even though the airline space is being one of the worst-hit corners by the coronavirus pandemic, stocks in the same realm have performed well on the bourses so far this year, driven by a slew of encouraging tidings. Evidently, the Zacks Airline industry has rallied 22.6% on a year-to-date basis, comfortably outpacing the S&P 500 Index’s 5.3% appreciation in the same time frame.
This impressive price performance came on the back of tailwinds like increased vaccinations, reduced coronavirus cases in the United States and the $1.9-trillion stimulus package, signed into law by president Joe Biden last week. Notably, roughly $14 billion of the total aid is earmarked for the airlines.
Amid this rosy backdrop, U.S.-based airline stocks appreciated significantly in yesterday’s (Mar 15) trading. Notably, shares of United Airlines UAL, American Airlines AAL, Delta Air Lines DAL, Alaska Air Group ALK, Southwest Airlines LUV, JetBlue Airways JBLU and Spirit Airlines SAVE shot up 8.3%, 7.7%, 2.3%, 5.8%, 1.8%, 5.9% and 1.8%, respectively, leading the NYSE ARCA Airline index to inch up 3.8% yesterday.
Lets delve deeper to unearth the reasons behind this surge on Mar 15.
United Airlines, currently carrying a Zacks Rank #4 (Sell), expects core cash flow to be positive for the current month owing to the uptick in passenger demand for air travel and fresh bookings witnessed by the Chicago-based carrier in the recent weeks. However, for the projection to come true, the current level of bookings needs to be sustained. Owing to the acceleration in forward bookings, United Airlines expects core cash burn for the March quarter to be favorable to the December quarter’s reading. American Airlines and Delta also witnessed an uptick in bookings over the recent weeks.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Additionally, Southwest Airlines’ management echoed similar sentiments, confirming that leisure passenger bookings were improving and evidently, operating revenues in March and April are expected to improve from the original estimations. However, operating revenues in March are likely to decrease in the 15-20% band on a year-over-year basis. Meanwhile, this projection is much better than the original estimate of a 20-30% decline. The improvement can also be gauged from the fact that operating revenues declined roughly 66% year over year in February. Moreover, February operating revenue declined 64% compared with 2019 levels. However, the metric is now projected to slump between 55% and 60% in March (earlier expectation was for a 55-65% decline) and from 45% to 55% in April from the 2019 levels. Average core cash burn is expected to be $14 million per day for the March quarter, again reflecting an improvement from the earlier estimation of roughly $15 million per day.
Load factor (% of seats filled by passengers) is anticipated in the 65-70% band during March and between 70% and 75% in April. The projections reflect a marked improvement from the February reading of roughly 64%. Capacity (measured in available seat miles) is expected to fall merely 14% year over year in March from the 48% decline witnessed in February. Further, capacity is expected to improve 83% year over year (previous estimate was for 81% increase) in April.
Moreover, driven by the recent improvement in leisure bookings, JetBlue now expects first-quarter 2021 revenues to decline between 61% and 64% from the first-quarter 2019 levels. The range compares favorably with the previous expectation of a revenue decline between 65% and 70% from the first-quarter 2019 levels.
Operating expenses for the March quarter are still expected to decline 25% from the first-quarter 2019 reading. The March-quarter EBITDA is now anticipated between a negative of $490 million and a negative of $540 million, which is better than the original estimation between a negative $525 and a negative $625 million.
Alaska Air expects first-quarter 2021 revenues to slump in the 55-60% band from the first-quarter 2019 levels. The projection is better than the February reading of a 69% decline.
Meanwhile, Spirit Airlines management gave an improved view for first-quarter 2021 adjusted EBITDA margin. This low-cost carrier expects the metric to come in “toward the better end of its initial guidance range of negative 45 percent to negative 55 percent”.
The recent improvement in the U.S. air-travel demand scenario also contributed to the uptrend in share prices. Evidently, the Transportation Security Administration (TSA) screened more than 1 million people on five successive days (Mar 11, Mar 12, Mar 13, Mar 14 and Mar 15). Notably, more than 1.35 million people were screened on Mar 12, the highest level since Mar 15, 2020.
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Southwest Airlines Co. (LUV) : Free Stock Analysis Report
JetBlue Airways Corporation (JBLU) : Free Stock Analysis Report
Delta Air Lines, Inc. (DAL) : Free Stock Analysis Report
United Airlines Holdings Inc (UAL) : Free Stock Analysis Report
Alaska Air Group, Inc. (ALK) : Free Stock Analysis Report
Spirit Airlines, Inc. (SAVE) : Free Stock Analysis Report
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