雅虎香港財經 Airline stocks lose year-to-date gains as industry 'divergence' emerges
Airline stocks are going through some turbulent times.
US carriers like American Airlines (AAL), United (UAL), and JetBlue (JBLU) are sputtering into the fourth quarter after losing their gains from the first half of the year — when shares were flying high on "revenge travel." Even Delta (DAL), the only major airline in the green for the year, has come down from its summer peak.
And among those names, US airlines that offer international routes are faring better than their domestic counterparts.
"The tide has shifted," Chris Raite, sector analyst at Third Bridge, told Yahoo Finance. "We are seeing a divergence. International travel is a lot more profitable, so it gives them a bit more leeway to be competitive."
The US Global Jets ETF (JETS), which tracks a range of airline operators and manufacturers, is down 30% over the last three months. The index's almost 30% rally in the first half of the year has been wiped out.
Third quarter results shows the industry is facing choppiness amid labor negotiations and higher jet fuel costs. On Thursday United stock sank 9% after the major carrier cut its forecast, citing the impact of flight disruptions to Tel Aviv amid the Israel-Hamas war and higher fuel costs.
"Fuel remains volatile and worked against us in the quarter. Our average fuel price for the quarter ended $0.30 higher than the midpoint of our July expectation and more than accounts for the entirety of the reduced outlook for the third quarter," Michael Leskinen, chief financial officer of United, said during the company's earnings call.
Costlier jet fuel is no real surprise to Wall Street after the air carriers released warnings last month of impacts to their bottom lines.
Delta CEO Ed Bastian reminded analysts during the carrier's earnings call in October that "since raising full-year guidance over the summer, our revenue outlook has improved, though earnings and cash flow have been impacted by higher fuel and maintenance costs."
On Thursday American’s stock rebounded from a three-month low after the carrier's profit solidly beat Wall Street expectations, but its forecast came in soft due to higher fuel costs and demand trends.
Higher labor costs are also an overarching challenge this year, as carriers negotiated contracts amid an industry pilot shortage.
While all carriers are grappling with higher costs, domestic, low-cost carriers appear to be getting hit the hardest.
A year-to-date chart shows Frontier (ULCC), Mesa Air (MESA), JetBlue, Southwest (LUV), Alaska Air (ALK), and Spirit (SAVE) all down double-digit percentages. Most of them peaked around mid-July and have been on a downward trend ever since.
By comparison American is 8% lower, United is down 2%, and Delta is up nearly 2%.
Traveler trends have a lot to do with the relative performance among the carriers. Domestic travelers took shorter trips amid the pandemic in 2021 and 2022. This year, strong demand for cross-border flights is now a tailwind for international carriers, and a headwind for lower-cost US operators.
"The network [international] carriers are using their profitability from international to compete a little bit more aggressively and take some of that share back domestically that they may have lost during the pandemic over the last few years," added Third Bridge's Raite — a point reiterated by major carriers this week.
United, for instance, said it would continue to increase the capacity, or gauge, of its flights within the US.
"United has increased domestic gauge more than any airline since 2019, and our plan is to push that even further in the years to come," said the airline's chief commercial officer Andrew Nocella during the earnings call.
Meanwhile American CEO Robert Isom said on the company's most recent earnings call that the airline wanted to restore regional service in some smaller markets in the US.
"We're building back and expanding our network in an efficient manner that will lead to stronger revenue production," he said.
Even the pilot shortage appears to be impacting domestic low-cost carriers more than the bigger flight operators.
"The big winners in the pilot shortage are the network [international] carriers. The network carriers can pay more than the low-cost carriers and they fly larger planes, which is attractive to pilots," said Raite.
Despite the turmoil, airline executives haven't indicated they're expecting a recession just yet.
"It doesn't seem that the carriers are seeing that. What gives confidence in that statement is what we're seeing with the reconfiguration of cabins," Raite said.
For example, United is moving forward with plans to increase first class seats from nine in 2019 to 16 by 2027, an 80% increase.
"All of [the major US airlines] have reconfigured their cabins to essentially flex to the more affluent consumer. So we're seeing robust growth out of that consumer," Raite said. "The way that they're spending their money signals to me that they don't see a recession imminent."
Even if international travel starts to falter, the major US carriers —namely United, American, Delta, and Southwest — are better positioned to weather choppiness than their low-cost counterparts, says Mike Boyd, president of Boyd Group International, an aviation consulting firm.
"It's just some rougher skies than we had originally anticipated," said Boyd. "To be very blunt, the major airlines in America, including Southwest, the top four, they're in a very good shape to get through a lot of turbulence in the next six to eight months."
Ines is a senior business reporter for Yahoo Finance. Follow her on Twitter at @ines_ferre
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