The pandemic was a very strong blow to the economy of companies in several sectors, but especially for airlines. Due to the quarantine orders worldwide, the operations of companies in this area were suspended because domestic and international flights had to stop for a period of time. As a result, airlines were among the most affected.
However, as time went on, demand for business and tourist travel picked up again. Health regulations related to the pandemic have been reduced in intensity thanks to the processes of mask use and vaccines. In addition, airports also contributed to the digitization of processes to facilitate travel and digital security services.
For their part, airlines offer travelers various packages with flights to tempting destinations including assistance and enhanced services. All these factors are driving an increase in the number of passengers to reactivate the economy in the airline industry.
Airline industry taking flight
This is how the US airline business seems to be taking off and is expected to reach pre-crisis levels. The S&P 500 Airlines Industry Index suffered a 10.6% drop last year; however, it rose 15.5% last month and has advanced 10.2% so far this year.
According to a report filed by the US Department of Transportation (DOT), available seat miles in the domestic market are speculated to grow 4.5% annually between 2021 and 2041.
Likewise, passenger mileage revenue is expected to increase by 5.7% annually and boardings by 5.4%. For international flights, the federal agency forecasts a 6.1% annual increase in available seat miles, a 7.5% rise in revenue passenger miles, and a 6.6% increase in boardings during the 2021-2041 period.
United Airlines Holdings
United Airlines Holdings is a company valued at $16 million.
Its first-quarter 2022 results were weaker than expected. The quarterly loss per share of $4.24 was higher than the consensus estimate of a loss of $4.21 per share. Its revenue was $7.57 billion and came in below the $7.68 billion analysts’ estimates of $7.68 billion.
However, despite the losses recorded, the company’s projections for the second half of the year surprised many. Total revenue per available seat-mile is expected to increase 17% over 2019 levels. United Airlines also expects to generate profits in the quarter, with operating margins of 10%.
Speculation is mounting that the second half of the year will be a major turning point for the company’s history. “The demand environment is the strongest it has been in my 30 years in the industry, and United and its customers will benefit more than any other airline,” said Scott Kirby, the company’s CEO.
Year-to-date, United Airlines shares are up 11.8%, and the United Airlines price forecast of $52.36 reflects an upside potential of 2.97% from current levels.
American Airlines Group
Meanwhile, the $13.1 billion-valued American Airlines Group, posted impressive results for the first quarter of the year. The net loss of $2.32 per share was better than the consensus estimate of $2.40 per share. Likewise, its revenue exceeded estimates, $8.9 billion versus the $8.83 billion expected.
American Airlines’ CEO, Robert Isom, believes that “the demand environment is very strong”, so it is looking to be “profitable in the second quarter based on current fuel price assumptions”.
That’s why for the second quarter of 2022, the company estimates revenue to increase by 6% to 8% over the comparable quarter of 2019. American Airlines shares are up 7.8% year-to-date.
Despite all the good news for the airline industry, they currently face the issue of the recent rise in fuel costs due to the conflict between Russia and Ukraine. According to the US Energy Information Administration (EIA), spot crude oil (WTI) prices are up 33.5% in the first quarter of 2022 and have advanced 7.7% since the beginning of April. Jet fuel costs have soared 77.5% in the first quarter from 2021 levels and are up 0.3% so far in April.
Companies in the airline market are confident that they will be able to manage rising fuel prices and any other concerns that arise.
Do you think they can achieve it? Does this seem like a good time to invest in airline stocks?
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