Airline stocks were faced with numerous challenges, hindering their performance on Tuesday. Following a sharp decline on Friday, the outlook for major U.S. airlines remained bleak. Delta Air Lines, United Airlines Holdings, and American Airlines Group all experienced a significant drop of 9% to 10% after Delta's 2024 forecast underscored the industry's mounting cost and margin pressures.
Delta's original target of earning more than $7 per share annually was replaced with a revised guidance of $6 to $7. Although this fell within the expectations of Wall Street, the market viewed the reduced forecast as a symbol of potential turbulence in 2024. Furthermore, the spike in oil prices further exacerbated the negative sentiment surrounding the industry.
In addition, recent severe weather conditions with subzero temperatures and heavy snow led to over 6,000 flight cancellations from Saturday to Monday across various parts of the U.S. This is likely to impact first-quarter earnings expectations adversely.
Another significant concern is the grounding of Boeing 737 MAX 9 aircraft. It comes as no surprise that United Airlines and Alaska Air, the two carriers most affected by this grounding, experienced a substantial decline in their stock prices on Tuesday. United Airways observed a 1% decrease, while Alaska Air fell by 0.6%.
Despite these challenges, market watchers remain cautious and are closely monitoring the developments in the airline sector.
FAA Extends Grounding of MAX 9, More Cancellations for United and Alaska
The Federal Aviation Administration (FAA) has decided to prolong the grounding of the MAX 9 aircraft, citing the need for more data before allowing it to resume operations. This announcement brings additional cancellations for United and Alaska airlines.
According to data from flight-tracker FlightAware, Alaska has canceled approximately 22% of its scheduled flights between January 6 (the day following the emergency incident aboard one of its planes) and Monday. Similarly, United has canceled around 9% of flights during the same period. These figures roughly correspond to the proportion of MAX 9 jets in each airline's fleet.
Investors are anxiously awaiting the upcoming earnings reports from both carriers, as they will shed light on the potential financial impact of this situation. However, the timing of the grounding might have provided some relief, as the start of January is typically a quieter period for air travel. Consequently, both airlines may have been able to accommodate affected passengers on other flights with available seats, minimizing the overall disruption.
When questioned about any benefits Delta may have experienced due to United and Alaska's issues, Glen Hauenstein, the carrier's President, mentioned a slight increase in bookings specifically in Seattle. However, he emphasized that this uptick was relatively insignificant in the broader context.
Despite Friday's somewhat exaggerated selloff led by Delta, it seems that the aviation sector is not yet ready for a substantial recovery.