- Financial report announcement time: January 20, Thursday US stocks Before the market
- Revenue expectations: US$9.31 billion
- Earnings per share expectations: loss of US$1.54
Despite the strong recovery of passenger traffic last year, airline stocks are still high-risk investments. The rapid spread of Omicron mutant strains, along with rising fuel prices, cast a shadow on the industry's growth prospects, when the industry is just beginning to recover from its worst travel decline in recent years.
(AAL weekly chart from Investing.com)
American Airlines (NASDAQ:AAL) is one of the most troubled airlines in the United States and it may reflect these challenges in its fourth-quarter earnings report released today. The airline's losses are still likely to expand, despite expected sales to double from the fourth quarter of 2020, according to general analysts' expectations.
In October this year, American Airlines warned that rising fuel costs may delay its profit recovery after losses caused by the epidemic. Fuel and labor costs are the most important expenses for airlines, and the continued rising prices could undermine the efforts made by most U.S. airlines for recovery. American Airlines spent $1.95 billion on fuel and tax revenue in the third quarter alone, three times the same period last year. In addition to rising costs, the explosive growth of Omicron infection cases in the United States has also added another layer of uncertainty. The disease and the harsh weather directly resulted in the forced cancellation of about 20,000 flights during the busy holidays.
Last week, Delta Air Lines (NYSE:DAL) told investors that the rapidly spreading Omicron variant would delay the overall recovery of the tourism industry by at least 60 days and result in losses in the first quarter. Delta said at its earnings conference that as COVID-19 cases are expected to peak in the United States in the next seven days, the pace of tourism improvement should return to its initial trajectory in December in the second half of February. These risks have put airlines under pressure since last summer. American Airlines shares fell about 29% from their June highs. On Tuesday, the stock closed at $17.90, down more than 3%. Despite the uncertainty and cost pressures of the pandemic, air traffic trends still show that travelers are now more willing to fly than last year. According to the Transportation Safety Administration, the nearest airport passenger flow was about 85% of the pre-COVID peak at the end of 2019. Although it is not as good as nearly 90% of the traffic over the Thanksgiving weekend, it is better than some investors are worried.
However, these encouraging trends do not hide the fact that airlines have been a bad investment target for investors for years. The U.S. Global Jets ETF (NYSE:JETS) has fallen 23.5% over the past five years, while the U.S. S&P 500 index has more than doubled during the same period.
(JETS weekly chart comes from Yingwei Financial Investing.com)
Moreover, even if domestic passenger flow rebounds next year, it is almost impossible for airlines to quickly recover to the level before the new crown epidemic. The next phase of growth for airlines will depend on the recovery of international and business travel, but with the advent of variants of the coronavirus, airlines are still facing various uncertainties.
Summary
Airlines is not a convincing investment target. The industry faces challenges, including rising fuel costs, labor shortages and the potential emergence of variants of the coronavirus. In the face of these adverse factors and when there are other potential opportunities in the market, it is meaningless to hold airline stocks.
