Top 5 Traded Airline Stocks

The Airline Industry has been directly affected as a result of the global travel restrictions to slow down the spreading of COVID-19. Many airlines have been unable to keep their doors open with lack of cash on hand to hold out through the storm.

As the entire market experiences a quick sell off in stock positions these 5 airlines continue to be traded high daily volume (Over 1m). As we look at the 5 top traded airline stocks you can start to see a similarity in all of their price action due to the global pandemic affecting the travel industry as a whole.

As you look into each airline individually determining their strength will be in identifying the market that they serve and the financial practices they follow that will guide the decision making process on which company to invest in. As always we hope you enjoy the information provided, the decision to make the trade or not is yours.

5. Southwest (LUV)

In a press release made this morning by Southwest Airlines Co. (NYSE: LUV) they stated that their earnings webcast for first quarter 2020 will be done on Tuesday April 28th 2020 at about 11:30 EST. This can be seen directly from their website. When we look at how Southwest has performed last year we see that with a 4th quarter net income of $514 Million they were able to end the year strong. With the report being titled 47th Consecutive year of profitability.

Full year operating cash flow of $4.0 Billion and record free cash flow of $3.4 Billion. Annual return on invested capitol pre-tax of 22.9 % and 17.8 % after tax basis. As directly stated within their report: During fourth quarter, reached confidential agreement with The Boeing Company (Boeing) on compensation related to estimated 2019 financial damages due to the March 13, 2019, Federal Aviation Administration (FAA) order to ground the Boeing 737 MAX aircraft (MAX); substantially all of the compensation will be accounted for as a reduction in the cost basis of both owned MAX aircraft and future purchased MAX aircraft, which is expected to reduce depreciation expense in future years.

Southwest currently is leading the market with aircraft flying currently in the current condition of COVID-19 travel restrictions. Although most of southwest routes are domestic they continue to fly many of the routes with minimal capacity will other airlines have chosen to completely ground airplanes instead.

On April 14th, Southwest announced it has reached an agreement in principle with the United States Department of Treasury about the general terms expected on the Payroll Support Program (“program”) under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). Under the agreement in principle, Southwest will receive the funding support necessary to protect the jobs of its more than 60,000 Employees through at least September 30, 2020, with the fundamental goal to maintain the carrier’s unprecedented 49-year history absent a single involuntary
furlough.

Looking to see if on the next earnings report Southwest is able to show significant cash on hand and little overall profit losses is going to be key factors to look for to determine future strength of the stock.

4. JetBlue (JBLU)

JetBlue Airways Corporation (NASDAQ: JBLU) reported on their 4th quarter 2019 results some of the following highlights:

  • Fourth quarter 2019 revenue per available seat mile (RASM) declined (2.7)% year over year. This decline is largely in-line with our updated guidance range of (3.5)% to (1.5)%.
  • Operating expenses per available seat mile, excluding fuel (CASM ex-fuel)(1) was flat year over year, at the midpoint of our guidance range of (1.0)% to 1.0%. This was mainly driven by the compounding benefits of the Structural Cost Program.

They had a troubling year as they serve a great portion of the Puerto Rican market which saw a significant decrease in travel after the earthquakes that they experienced last year. With one of their other major destinations being New York they have cut almost all the fights to destinations like JFK and EWR as a result of dropping demand and restrictions in travel.

JetBlue is still operating flights within the United States domestically when necessary although the load-factors have decreased to levels under 10% of previous levels.

These drops in demand are greatly affecting the cash-flow of their operations as these flights can now cost more to operate than the income they generate.

3. United Airlines (UAL)

Similar to the other airlines reporting hitting their goals for 2019, United Airlines reached the goal that was placed back in 2018. This was a great achievement to begin with as as the ability to be able to have:

  • Reported fourth quarter net income of $641 million, diluted EPS of $2.53, up 50% versus the fourth quarter of 2018, pre-tax earnings of $844 million and pre-tax margin of 7.8 percent, expanding pre-tax margin 2.5 points versus the fourth quarter of 2018.
  • Reported fourth quarter adjusted net income of $676 million, adjusted diluted EPS of $2.67, up 11% versus the fourth quarter of 2018, adjusted pre-tax earnings of $889 million and adjusted pre-tax margin of 8.2 percent, expanding adjusted pre-tax margin 0.5 points versus the fourth quarter of 2018.1
  • Reported full year net income of $3.0 billion, diluted EPS of $11.58, up 51% versus full year 2018, pre-tax earnings of $3.9 billion and pre-tax margin of 9.0 percent, expanding pre-tax margin 2.6 points versus full year 2018.

With a long list of areas in which they have excelled the expectation of the market they have high optimism towards making it out of this pandemic strong. Most of United routes are international and their routes in Asian territories have almost completely stopped all together.

Having stated that they will be receiving funds from the government looking to see how the bailout money affects the long term sustainability of the business is going to be a key factor in the outlook for the company.

2. Delta (DAL)

Delta Air Lines is one of the first to be announcing their Q1 earnings report for 2020. They have announced recently that they have secured $2.6 billion in secured funds through a credit facility. This will enhanced their ability to remain operational during the unprecedented decline in air travel demand due to the outbreak of COVID-19.

In order to preserve liquidity, Delta has suspended its capital return program, including the company’s stock repurchase program and the Board’s suspension of future dividend payments.

“The growing need to protect Delta’s future has led to difficult decisions across our business that are impacting all of our stakeholders,”  said Delta CEO Ed Bastian. “Maintaining ample liquidity during this crisis is critical to the essential service that Delta provides in America’s transportation infrastructure as well as the jobs of more than 90,000 Delta people across the country.”

An exert taken from Delta.com

Capacity

By region, reductions include:

Entity% of Total FY19 RevenueCapacity Reductions
Pacific6%Down 65%
Trans-Atlantic15%Down 15-20%
Domestic72%Down 10-15%
Latin7%Down 5%

Expenses

Delta is undertaking cost reduction initiatives, including:

  • Instituting a company-wide hiring freeze and offering voluntary leave options
  • Parking aircraft, and evaluating early retirements of older aircraft

In addition, the recent fuel price decline provides approximately $2 billion of full-year expense benefit.

Balance Sheet and Cash Flow

Delta has also made the following cash flow decisions:

  • Deferring $500 million in capital expenditures
  • Delaying $500 million of voluntary pension funding
  • Suspending share repurchases

Delta is hoping that these direct changes will directly combat that adverse condition that have come with the travel demand reduction.

1. American Airlines (AAL)

American Airlines has also come out with their response to the customer demand related issues due to COVID-19. Announcing the suspension of dozens of flights all around the world within the Asian region, European market and South America. The company plans to:

  • Reduce international capacity for the summer peak by 10% versus the previous selling schedule, including a 55% reduction in trans-Pacific capacity.
  • Reduce domestic capacity in April by 7.5% versus the current schedule.

Widebody aircraft will be redeployed on key domestic routes in American’s network. American will also introduce new seasonal service between ORD and Honolulu (HNL) this summer on a Boeing 787-9.

These capacity reductions assume no slot waivers are in place. At airports where demand exceeds airfield and/or terminal capacity, access is governed by slots that grant airlines permission to take off and land at specific times. 

Currently being one of the most traded airlines in the U.S. Market American Airlines has the most volume currently on a daily basis of trades being made to date. We can see the dramatic increase in trading volume over the last few weeks and we can expect to continue to see trading volume high as many eyes are on the stocks watching to see rise in value soon. With their earnings report coming out in the next week many have their eyes on seeing less damage than anticipated.


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