Major Airline Stocks: No Time to Die?

Is the aviation industry out of the woods yet? As the U.S.’s most adorable and annually longest 4th July-linked weekend approaches, investing in the outperforming airline stocks may be a refreshingly good idea amidst overall lukewarm market conditions.

Let’s look at the stats. Airbus (EADSY) delivered 50 airplanes in May, bringing its total so far this year to 220 jets, up 38% from the same period last year. Deliveries included the first A380 superjumbo to Dubai’s Emirates since December last year. Airbus also confirmed an order of five A350 wide-fuselage jets from Germany’s Lufthansa. Meanwhile, Boeing (BA) has been still scrambling with 787 final re-certification difficulties, while both major planemakers still faced a sluggish demand for wide-fuselage (long distance travel) jets exacerbated by the uneven path of coronavirus pandemic across the globe.

If Memorial Day weekend is of any indication to the planned Independence day sales, then we must look at the U.S. domestic leisure tickets sales, which were up +29.5% vs. same period in 2019. However, sales were down -51.3% vs. 2019 for the week ending May 23 vs. prior (regular for travel booking) week's -59.7% and -63.3% the week before.

However, the legacy airlines like American Airlines (AAL) largely rely on corporate and international travel as a revenues multiplier so this will be the single most important factor for their profits’ return to more normal pre-pandemic level patterns. American Airlines Group expects Q2 2021 “system” capacity to be down 20% to 25% and total revenue to be down around 40% against Q2 2019. American Airlines also expects leisure yields to approach or exceed 2019 levels during the peak summer travel period.

In the same vein, at the Bernstein Strategic Decisions Conference, Delta Airlines (DAL) in its presentation slides released by CEO Ed Bastian, guided for Q2 revenue to be down 50% to 52%, which is a slightly better range than the -50% to -55% in its prior forecast. Revenue was mentioned in the range between $6.0 billion and $6.2 billion vs. $6.22 billion market consensus. Delta also mentioned a Q2 pre-tax loss of $1.0 billion to $1.2 billion (which is still a lot!) vs. prior guidance for a $1.0 billion to $1.5 billion loss.

The bottomline is that the upcoming start-of-July bookings and sales will certainly be strong, which will be widely commented by business media and the airliners themselves. However, that may give us a false sense of a done deal leading to a prematurely bullish market, which is likely to disappoint down the road. Therefore, seeking an exit point some time before they publish their semi-annual financial results around July 13-July 23 with a likely somewhat muted guidance looks like a valid strategy given the above considerations.