Stock Analysis & Ideas

Turbulence Alert! Darker Clouds Ahead for Airline Companies

Story Highlights

Airline companies continue to battle their unending woes amid an uncertain future. One can say that it is both raining and pouring for them.

One of the major casualties of the coronavirus-induced lockdowns globally was the airline sector. The stay-at-home mandate by various governments across the world led to the sudden ceasing of airline operations, resulting in debilitating losses for companies like Delta Air Lines, Inc. (NYSE: DAL), United Airlines, Inc. (NASDAQ: UAL) and JetBlue Airways (NASDAQ: JBLU).

With the virus losing steam steadily, economies reopening and leisure and work-related travel gaining pace, optimism embraced these companies as they thought that the worst was finally over.

However, the onset of 2022 brought a new set of challenges for them. Geopolitical tensions led to a massive rise in fuel prices. Further, record-high inflation levels not seen in the last four decades and an impending recession started biting into the demand. These factors acted as huge headwinds for the companies, hurting their margins. However, these were just the tip of the iceberg.

More Challenges to Come

According to a report by The Wall Street Journal, thunderstorms during the summer season will lead to delayed flights and cancellations. In fact, major East Coast airport hubs have witnessed so many lines of storms that hundreds of flights got canceled on some days.

Citing data from Cirium, which provides data, analytics and advisory services, the report stated that 2.9% of domestic flights in the U.S. got canceled in June, compared with 2.1% in the same period of 2019.

The report added that staff shortages will also impact the operations of airline companies. During the pandemic, these companies laid off staff across the board. Now, they are understaffed, which has opened gates for more disruptions and inefficient services.

To tackle this, airline companies are planning to cut back on flights. They believe that the move can lead to more reliable and efficient operations.

The report stated that United Airlines is planning to limit flying from its Newark, N.J., hub. Similarly, Delta Air Lines is looking at decreasing its frequency of flights in July and into August to build more resilience and improve reliability.

Stock Rating

Now, let’s steal a glance at what Wall Street thinks about these companies.

As per TipRanks, the Street has a Strong Buy consensus rating on Delta Air Lines based on 12 Buys and one Hold. DAL’s average price target of $52.25 implies upside potential of 71.7% from current levels. Shares have declined 29.4% over the past year.

Meanwhile, analysts are cautiously optimistic about United Airlines and have a Moderate Buy consensus rating on the stock based on 10 Buys, six Holds and one Sell. UAL’s average price forecast of $59.66 implies that the stock has upside potential of 60.38% from current levels.

Based on five Buys, five Holds and two Sells, JetBlue has a Hold consensus rating. JBLU’s average price target of $14.30 implies upside potential of 63.2% from current levels. Shares have declined 48.3% over the past year.

Conclusion

In the absence of adequate tailwinds, the companies need the comfort of liquidity and competent management to stay afloat amid rising waters.

Read full Disclosure

Tired of arriving late to the Big Returns Party?​
Most investors don’t have major gainers like TSLA or NVDA on their radar from the start.
The profusion of opinions on social media and financial blogs makes it impossible to distinguish between real growth potential and pure hype.
​​For the past decade, we have developed and perfected technology designed to help private investors, just like you, find the best opportunities, with the greatest upside potential, in any financial climate.​
Learn More