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

Delta Air Lines DAL kicked off the fourth-quarter 2021 earnings season for the airline stocks yesterday on a bright note. DAL reported better-than-expected earnings per share and revenues for the same period. Results were aided by an upbeat air traffic during the holidays.

Apart from a strong earnings report, DAL management’s encouraging commentary on the omicron variant of COVID-19, pleased investors. As a result, the stock gained 2.1% on Jan 13. In fact, the bullishness was not limited to Delta alone as other stocks like American Airlines AAL, Spirit Airlines SAVE and United Airlines UAL in the industry were also lifted. The NYSE ARCA Airline index was up 2.84% following the northward movement of its constituents.

Omicron: A Short-Term Pain Point for Air-Travel Demand

The omicron variant is causing U.S. airlines, including Delta to cancel multiple flights as the illness caused by the virus results in staff crunch. Encouragingly, for Delta, operations have stabilized over the past seven days with omicron-related cancellations impacting only 1% of its flights, per CEO Ed Bastian.

Bastian further said that the omicron impact is likely to be short-term and “is expected to temporarily delay the demand recovery 60 days”. Although the variant is likely to result in a first-quarter loss for Delta, it is expected to be profitable in the remaining three quarters of 2022. In fact, DAL, currently carrying a Zacks Rank #3 (Hold), expects spring and summer travel to recover, riding on significant pent-up air travel demand, “resulting in a meaningful profit in 2022”.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Entire Industry Perked Up

Delta’s healthy earnings report and bright forecast cheered investors, prompting them to grow bullish on the entire industry. American Airlines, which will report its fourth-quarter results on Jan 20, gained 4.54% yesterday. Like Delta, AAL’s December-quarter results are likely to be positively impacted by upbeat passenger traffic. AAL operated 1,500 flights more than other airlines during the Thanksgiving week.

Buoyed by the strong air-travel demand scenario, American Airlines recently provided an improved revenue guidance for the final quarter of 2021. Management now expects total revenues to decline approximately 17% in the fourth quarter of 2021 from the comparable period’s figure in 2019. Previously, the airline estimated the same to decrease around 20%. The expectation that fuel cost per gallon will decline is also a positive. If this expectation comes true, the bottom line at AAL will get a boost. AAL now expects average fuel price per gallon to be $2.36 for the fourth quarter compared with the previous expectation of $2.43-$2.48.

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

Against the above backdrop, upbeat passenger volumes during the holidays are likely to have bumped up UAL’s performance in the to-be-reported quarter. The Zacks Consensus Estimate for fourth-quarter passenger revenues indicates a surge of more than 100% from the year-ago reported number. Moreover, United Airlines suggests a 2.1% increase from the third-quarter 2021 reported level.

Spirit Airlines was another top gainer on Jan 13 with shares of SAVE rising 5.08% yesterday. SAVE is expected to report fourth-quarter results on Feb 8. Similar to other carriers, SAVE’s top line is likely to have benefited from increased passenger revenues, accounting for bulk of its revenues.

Driven by upbeat traffic during the holidays, the Zacks Consensus Estimate for fourth-quarter passenger revenues at Spirit Airlines indicates a 6.3%% increase from the third-quarter 2021 reported level. On the back of higher traffic, the consensus mark for SAVE’s load factor (% of seats filled by passengers) in the December quarter is currently pegged at 80, higher than 78 recorded in third-quarter 2021.

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Delta Air Lines, Inc. (DAL): Free Stock Analysis Report
United Airlines Holdings Inc (UAL): Free Stock Analysis Report
American Airlines Group Inc. (AAL): Free Stock Analysis Report
Spirit Airlines, Inc. (SAVE): Free Stock Analysis Report
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