As US airlines begin reporting their first quarter 2021 revenues this week, all eyes will be on their projections for the pivotal summer season, which should recover after the country's massive vaccination campaign.
Early signs show that after the worst plunge in air traffic during the pandemic, airlines will have a busy season. Delta Air Lines (NYSE 🙂 said last week that it had recalled all of its 1,713 inactivated pilots on April 1, before the staff shortage contributed to about 100 flight cancellations.
The pilot reviews show how US airlines are stepping up their efforts to prepare for a potentially busy summer as more people receive COVID-19 vaccinations. United Airlines (NASDAQ 🙂 said in late March that it would hire 300 new pilots to meet growing demand.
Delta will report first quarter earnings on Thursday before the market opens. On average, analysts expect a loss of $ 2.84 per share on revenue of $ 4.02 billion. Investors will focus on the cash burn rate and any sign of business travel.
Delta Air Lines Weekly Chart.
American Airlines (NASDAQ 🙂 warned in a preliminary release of its Q1 figures yesterday that it could lose more than $ 1.2 billion for the period it reports revenue next week and that a recent surge in ticket sales would did not prevent the money from burning.
Weekly chart from American Airlines.
American Airlines of Fort Worth was the second major airline, after United, to warn that the COVID-19 pandemic is still hitting, a sign that it may take much longer than expected to deal with the financial pain of the pandemic almost international. Travel Wiped Out
Signs of Revival
Despite these warnings, there are hopeful signs that Americans are traveling more domestically, helping airlines reduce their losses. More than 1.5 million passengers passed through homeland security checks on April 4, compared to just 122,029 a year earlier.
United and American have said their planes are about 80% full. Delta's reliability will improve this spring and summer "as more of our workforce is vaccinated and more pilots return to active flying," the company said in a statement last week.
The potential resurgence of air travel has led to a massive surge in airline shares. After the vaccine breakthroughs in November, airline stocks surged, creating the world's largest airline-focused ETF, the U.S. Global Jets ETF (NYSE :), got higher. It is up 48% in the last six months.
That meeting showed investors confidence that successful vaccine development will help improve travel demand and ultimately benefit the most battered members of the stock market. The pandemic ended the decade-long string of profits enjoyed by the airlines, causing losses of more than $ 20 billion to the industry last year.
But a turnaround in travel demand may not come soon enough, nor as aggressively as some investors hope, due to international travel bans and the still low demand for business travel.
According to Cowen analyst Helane Becker:
“Globally, countries still need to reopen their borders, as well as reopen tourist attractions and the like before people travel internationally. Airlines have to reopen things and reopen borders, and the revenue issue resolves itself. "
Scott Kirby, CEO of United Airline, said in January that there was a lot of evidence showing that there is a huge pent-up demand for travel, but he was less sure that this would happen this summer.
By some estimates, the business category could shrink by as much as 15% due to the video conferencing trend that boomed during the pandemic.
According to Deutsche Bank, US airlines will continue to grapple with record debt of $ 170 billion. That means "airlines have no choice but to spend most of their free cash flow on paying off debt," the bank said.
Bottom Line
A strong rebound in airline stock shows investor confidence that people will resume their normal journey once they have been vaccinated. But that optimism is strongly reflected in their current stock prices and leaves no room for further upside potential in the near term.
The coming earnings reports will likely prove the point of airlines taking a long journey to recover losses and show profits.
