Airline Stocks in Desperate Need of Good News

Airline stocks are desperately seeking some positive developments. Unfortunately, the upcoming earnings season is unlikely to provide enough support.

United Airlines to Kick Off Airline Earnings

United Airlines (ticker: UAL) is set to begin a series of airline earnings announcements on Tuesday, following Delta Air Lines (DAL) last week. American Airlines (AAL) will report its earnings on Thursday. Despite the challenging market conditions, these three carriers are expected to outperform their competitors due to their international exposure and lower reliance on weakening domestic demand.

Stocks finding it hard to Rise

However, this doesn't necessarily guarantee a rise in their stock prices.

Delta's recent earnings report was impressive, considering the circumstances. Nevertheless, the company's shares fell more than 5% in the following two trading days. Delta exceeded earnings expectations, achieving record third-quarter revenue, and signaled continued strong travel demand in the December quarter. Business travel showed improvement, and trans-Atlantic revenue witnessed an increase of 34%, generating the highest revenue per available seat mile in the company's history.

Unfortunately, these positive results failed to lift Delta's stock price, which has declined by 30% since reaching its peak in July. Factors such as higher jet fuel prices during the third quarter and rising oil prices due to the Israel-Hamas conflict are creating additional pressure on airline stocks.

Considering how investors reacted to Delta's seemingly solid earnings report, United Airlines also faces a significant challenge in boosting its stock prices after their upcoming earnings announcement.

United Airlines Faces Challenges Amidst Industry Turmoil

Analysts predict that United Airlines (UAL) will report adjusted earnings per share (EPS) of $3.38 on revenue of $14.4 billion. However, surpassing these estimates may not be enough to satisfy investors. In light of Delta's recent downward revision to its 2023 outlook, United's full-year earnings guidance will be closely scrutinized. Delta now expects EPS to range between $6 and $6.25, compared to its previous forecast of $6 to $7.

United's current guidance sits between $11 and $12 per share, but analysts are skeptical. According to FactSet, the consensus stands at $9.96. This skepticism reflects the challenges larger carriers face in boosting their shares by demonstrating strong profits, recording high revenue, and indicating solid demand. Unfortunately, the low-cost carriers, including JetBlue Airways (JBLU), Spirit Airlines (SAVE), and Frontier Airlines (ULCC), are expected to fare even worse, with projected losses.

Christopher Raite, an analyst at Third Bridge, emphasized the changing dynamics within the U.S. airline industry. He noted that low-cost carriers heavily reliant on domestic leisure travel are struggling to maintain profitability, while network carriers with international exposure are achieving robust profit growth.

J.P. Morgan analyst Jamie Baker warned that the low-cost airlines should brace themselves for more challenges ahead. In a recent note, he stated that any U.S. airline failing to achieve third-quarter profitability (SAVE, ULCC, JBLU) must implement meaningful course corrections. Failure to do so may result in further equity losses.

It is evident that the aviation industry is undergoing a period of uncertainty and transformation. How United Airlines navigates these challenges will be key to its future success.