Airline Stocks Fly High in Thursday’s Trading: Here’s Why

This story originally appeared on Zacks

Delta Airlines DAL kicked off its fourth-quarter 2021 earnings season for airline stocks yesterday on a bright note. DAL reported better-than-expected earnings and earnings per share for the same period. The results were supported by optimistic air traffic during the holidays.

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Aside from the strong earnings report, encouraging comments by DAL management on the omicron variant of COVID-19, have pleased investors. As a result, the stock rose 2.1% on January 13. In fact, the upside was not limited to Delta alone as other stocks like American Airlines AAL, Spirit Airlines save and United Airlines UAL has also been raised in the industry. The NYSE ARCA Airline Index is up 2.84% after the northern movement of its components.

Omicron: A short-term pain point for ordering air travel

The omicron variant is causing US airlines, including Delta, to cancel many flights as illness caused by the virus leads to a staffing crisis. Encouragingly, for Delta, operations have stabilized over the past seven days with Omicron-related cancellations affecting just 1% of its flights, according to CEO Ed Bastian.

Bastian further said that Omicron’s effect is likely to be short-lived and “is expected to temporarily delay the recovery in demand by 60 days”. Although the variant is likely to cause Delta to lose in the first quarter, it is expected to be profitable in the remaining three quarters of 2022. In fact, DAL, which currently holds Zacks Rank #3 (Hold), expects spring and summer Travel to recover, taking advantage of pent-up demand for air travel, “leading to a meaningful profit in 2022.”

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The whole industry improved

Delta’s healthy earnings report and bright outlook sparked cheers from investors, driving them to bullish growth in the entire industry. American Airlines, which will report its fourth-quarter results on January 20, rose 4.54% yesterday. Like Delta, AAL’s results for the December quarter are likely to be positively influenced by upbeat passenger traffic. AAL operated 1,500 more flights than other airlines during Thanksgiving week.

Supported by a strong air travel demand scenario, American Airlines recently provided improved revenue guidance for the fourth quarter of 2021. Management now expects total revenue to decline approximately 17% in the fourth quarter of 2021 compared to a similar figure in 2019. Previously, it estimated The airline reduced by about 20%. The expectation of lower fuel cost per gallon is also positive. If this prediction comes true, the final result in AAL will get a boost. AAL now forecasts an average fuel price per gallon of $2.36 for the fourth quarter, compared to a previous forecast of $2.43-$2.48.

United Airlines, which will announce fourth-quarter results on January 19, gained 3.5% yesterday. Like its peers, UAL drew significant traffic during the Thanksgiving holiday period. UAL expanded its domestic network by 700 flights during Thanksgiving week. By doing so, the airline operated about 87% of its domestic 2019 schedule.

Against the aforementioned background, upbeat holiday passenger volumes likely boosted UAL’s performance in the quarter to be announced. The Zacks consensus estimate of passenger revenue for the fourth quarter is more than 100% up from last year’s figure. Furthermore, United Airlines is proposing a 2.1% increase over the announced Q3 2021 level.

Spirit Airlines was one of the biggest gainers on Jan. 13, with shares of SAVE up 5.08% yesterday. SAVE is expected to report fourth-quarter results on February 8. Similar to other carriers, SAVE’s higher earnings are likely to have benefited from increased passenger revenue, which accounts for the bulk of its revenue.

Driven by upbeat holiday traffic, Zacks Consensus’ estimate of fourth-quarter passenger revenue at Spirit Airlines indicates a 6.3% increase over the reported third-quarter 2021 level. On the back of higher traffic, the consensus mark for the SAVE load factor (% of seats filled with passengers) in the December quarter is currently held at 80, up from the 78 recorded in the third quarter of 2021.

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