Airline stocks are experiencing a downward trend as investors remain cautious due to a range of uncertainties and challenges faced by the sector.
Reduced Outlook Raises Concerns
Following a significant decline in the sector on Friday, there are no signs of an immediate rebound as major U.S. airlines continue to face share price declines. Delta Air Lines, United Airlines Holdings, and American Airlines Group all recorded a drop of 9% to 10% on Friday, primarily due to Delta's revised 2024 outlook that highlighted industry-wide cost and margin pressures.
Delta's previous target of annual earnings per share exceeding $7 has now been replaced with a more conservative guidance range of $6 to $7, which aligns with market expectations. However, this reduced outlook has been viewed by investors as a symbol of potential turbulence in the industry in the coming years. The recent spike in oil prices has only added to the prevailing negative sentiment.
Severe Weather Further Complicates Matters
Furthermore, the industry faces additional challenges as severe weather conditions across large parts of the U.S. resulted in over 6,000 flight cancellations from Saturday to Monday. The subzero temperatures and heavy snow have a direct impact on first-quarter earnings expectations.
Impact of Boeing 737 MAX 9 Grounding
Adding to the list of concerns is the ongoing grounding of Boeing 737 MAX 9 aircraft. It is no surprise that the two airlines most affected by this issue, United Airlines and Alaska Air, have witnessed a significant decline in stock value. United Airlines shares dropped by 2.2%, while Alaska Air saw a decline of 3%. Delta Air Lines also experienced a decrease of 3.4%.
In conclusion, the airline industry currently faces multiple risks and uncertainties. The revision in outlooks, coupled with adverse weather conditions and the impact of aircraft grounding, have resulted in a cautious approach from investors.
FAA Extends Grounding of MAX 9 Aircraft, More Cancellations Expected for United and Alaska
The Federal Aviation Administration (FAA) has announced an extension of the grounding of the MAX 9 aircraft. The FAA states that it requires more data before allowing the aircraft to return to service. Consequently, United and Alaska Airlines will face further cancellations.
Between January 6th, the day after the emergency incident, and Monday, Alaska has already canceled 22% of its scheduled flights, as reported by flight-tracker FlightAware. Similarly, United has canceled 9% of its flights during the same period. These percentages align with the number of MAX 9 jets in each airline's fleet.
Investors will be closely monitoring the financial impact when both carriers report their earnings next week. However, the grounding's timing may work in their favor since the beginning of January is typically a quiet period for air travel. This allows the airlines to accommodate affected passengers on other, less crowded flights, thereby minimizing the overall impact.
While asked about the potential benefits for Delta due to increased bookings resulting from United and Alaska's issues, Glen Hauenstein, President of Delta, mentioned a "small uptick" particularly in Seattle. However, he emphasized that this increase was "minimal in the grander scheme of things."
Despite Friday's selloff, led by Delta, the aviation sector does not appear poised for an immediate recovery.