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Airline Stocks Rally Over 30%
The Airline industry has been under fire since mid 2019. First starting with trade conflict between China and U.S. cargo airline carriers experienced a decrease in business as less freight was being flown overnight directly from Asia to the United States. This was the first catalyst to affect the airline stocks back near late summer and early fall of 2019.
As we entered into the start of 2020 we start to see that airlines are the first to drop and the ones to drop the most! Looking at the chart of some of the airline stocks you can almost see a straight line drop from major highs down to all time lows for many of the companies. This last week in the market has been a sudden shock for many investors as airlines that were falling and dropping in value have recently made a turn on a dime and have been heading right back to previous trading levels.
We can some some major jumps for example specifically in the airline industry as compared to other sectors in the aerospace industry. Companies such as American Airlines (AAL) finished the week up 67.33%, following up behind is Spirit Airlines (SAVE) which had a surge of 62% gains in the last week.
Retail investors have been playing a major role in the rapid fluctuation of money in the market. As news is being spread as incredible speeds through the market, decisions are being made instantly due to fear of missing out on the movement. With all the airline stocks dropping down to major lows, regardless of the fundamentals behind the drop in value, retail investors are buying shares with the idea of buy low and sell high. Certainly enough the drive of retails investors to purchase undervalued assets has helped keep certain companies operating.
LATAM Airlines for example has recently asked for Bankruptcy protection by the United States although just last week their stock has spiked up over 75%. Hertz rental car company (HTZ) also has a similar experience where they were looking to potentially close doors. As their stock value dropped rapidly it experienced a massive surge of trades from mobile trading applications such as Robinhood that they managed to generate millions in investments.
The market is certainly acting in a manner that many investors have never experienced before. Part of the reason being is that many new investors are entering the market than ever before. The speed that which information is being spread throughout the internet is now extremely rapid and decisions are being made more rapidly. Overall investors need to adapt to the speed of the market.
Volatility in the Market Drops with New “Norm”
Job reports in the United States are currently at record levels, COVID-19 cases in the United States continue to rise to 1.9 Million cases and over 110,000 reported deaths. Social movements are being made in the united states which are challenging the unspoken social injustices that occur in the Nation, yet stocks have had their greatest rally to record.
Has the market accepted a new level of volatility to be normal. As global conditions continue to escalate and conflict nationally is at all time high the Volatility index continues to drop down over 70% from its highs back in March. Is the market calculating all of these factors and elements are new social norms. Is it pricing in a period of dramatic global tension to be a standard in the market?
As we start to see the volatility index start to lower dramatically it is attracting investors from all corners of the world to look into U.S. assets. With Mask-wearing and social distancing becoming a social norm for many cultures the changes in our society are occurring on a massive scale directly affecting the way that people do business. Retail operations are moving entirely online and many service providers are having to redesign their business models.
The benefit of the airline industry is that the service of transportation is difficult to omit. Goods and products will always need to be delivered from one location to the next. The system of logistics and transportation providers and suppliers all work together in a massive network around the world.
For these systems to be taken out of the equation it would require a complete restructuring of the entire worlds productions systems. A process which has not yet been replaced with a more sustainable and reliable procedure. As a result we can expect to see the need for transportation services to remain present for the coming years.
Safety of Air Travel
Air Travel continues to remain one of the safest modes of transportation that exist. Various airlines has taken the time to provide detailed explanations on the processes and equipment that is used to clean and sanitize their cabins between flights. HEPA filters are installed on commercial aircraft and a study was done showing that the Air inside a cabin is recycled entirely every 3 minutes.
With airlines requiring its guest on board to be wearing face covering and to not travel while ill this helps reduce the possibility of viral contamination being spread on board.
For those who still do not feel comfortable flying commercially in a cabin with hundreds of individuals then private aviation may be the best solution to your travel needs.
Flying private aviation allows you to have the exclusiveness and premier service that you desire. Many private aviation companies have incorporated strict policies to ensure that cabins are disinfected and cleaned prior to serving its guests. Be sure to ask your charter agent about their procedure when it comes to cabin cleaning procedures. It is important that they know what services are being completed on the aircraft and what additional services can be provided should they be requested.
Our team has great connections with various cabin cleaning companies and would be happy to help you with your search on finding a reputable vendor available to sanitize your aircraft. Reach out to us at Info@airmarketgroup.com for more information
Will the Rally Hold its Strength
With a sudden rally and spike in volume for recent purchases the market is taking a rapid whipsaw movement. The question that lies ahead now is if the rapid movement upwards will be sustainable or if will be followed by a quick downturn.
Electronically Traded Funds (ETF) are great ways for individuals to invest in a total industry without having the risk of being exposed to a single company. The ETF JETS is a combinations of various companies in the airlines industry. When investing in ETF’s your risk is potentially lower as the value of the ETF is an average of the stocks that are part of the asset class.
Taking a look at a popular Airline ETF (JETS) we can take a look at a general average of the Airline industry.
Depending on the total strength and growth rate of each individual company it all averages out together. JETS is a great way for someone to be able to take advantage of the growth that the aviation industry would experiencing without having to pick a specific company form the mix.
The stocks that make up the ETF JETS include the following:
|Company||Total Net Assets|
|American Airlines (AAL)||12.02%|
|Southwest Airlines (LUV)||11.66%|
|Delta Air Lines (DAL)||9.69%|
|United Airlines (UAL)||9.59%|
|Air Transport Services (ATSG)||5.38%|
|Skywest Inc (SKYW)||4.66%|
|Alaska Air (ALK)||3.99%|
|Spirit Airlines (SAVE)||3.83%|
|Jetblue Airways (JBLU)||3.79%|
|Mesa Air (MESA)||3.66%|
A look at Aircraft Leasing Companies
When we look at the future of the aviation industry its important to sort through the various companies in the industry and determine key business models that have the potential of exponentially growing in the years to come. Aircraft Leasing companies have shown to be extremely profitable in the years past with their valuable assests and ability to create consistent cash flow.
Last week we looked at an Aircraft Leasing company that is currently expanding their fleet and signing new contracts with airlines to have more aircraft oerating under contract. These aircraft with a average age of only 3 years of services are young and ready to continue to fly for years ahead. With the market unsure of what demands the future will bring many airlines may be more inclined to lease an aircraft as compared to buying a new one.
For more information on aircraft leasing companies check out our most recent article
Increase Spending for Aviation Leasing Agents Air Lease Corporations (NYSE: AL) during their first Quarter results spoke of adjustments that have been made to adjust to the unprecedented impact to the airline and aerospace industry. Air Lease Corporations (ALC) (NYSE: AL) First Quarter financials were released on May 7th 2020. They reported a revenue of…
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