Live Markets: Longer wait for airline results take-off

Copa Holdings

23/07/2024 18:34

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    LONGER WAIT FOR AIRLINE RESULTS TAKE-OFF
    Airlines aren't the weakest of the transports stock group on
Tuesday, but Seaport Research Partners is out with a less than
glowing report for the sector citing a laundry list of issues
including weaker than hoped for demand, plane delivery issues,
pricing pressures, and last Friday's global tech outage which
grounded flights.
    Based on reports from 3 carriers so far this quarter -
Alaska Air Group  ALK.N , United Airlines  UAL.O  and Delta Air
Lines  DAL.N  - Seaport analyst Daniel McKenzie said he was
resetting revenue estimates for the sector and pushing his
expectation for margin expansion out to Q4.
    McKenzie wrote in a research note, dated July 22, but
emailed on July 23, that he had expected choppy stock
performance for the first half of the year but anticipated that
Q2 earnings would be an inflection point for the group with the
help of hopes for Q3 revenue and margin expansion.
    But now he writes that July revenue challenges will "likely
prompt more airlines to disappoint on their 3Q24 outlook" so his
 expectation for better stock performance has been pushed out to
Sept or Oct.
    McKenzie estimated a cost to U.S. airlines of >$100 million
stemming from the operational disruptions from Friday's
CrowdStrike  CRWD.O  tech problem, though he did caution that 
it was early days to try to put a number on the issue. 
    This includes an estimate for ~$40 million in costs for
Delta  alone as the carrier has canceled more than 5,000 flights
since Friday, leading the U.S. Transportation Department to say
on Tuesday that it was opening an investigation into the
airline.
    McKenzie said he reset second-half revenue expectations for
six airlines - American Airlines  AAL.O , Allegiant Travel
 ALGT.O , JetBlue  JBLU.O , Southwest Airlines  LUV.N , Spirit
Airlines  SAVE.K  and Copa Holdings  CPA.N  - and revised
Seaport's price targets for Allegiant and Copa.
    McKenzie cites summer oversupply due to a demand forecasting
error on the part of airlines as higher interest rates have
slowed the economy, which "leaves normalized demand an open
question mark" and "materially lower than last year."
    This brings creates challenges as the airlines have to pay
for "labor's historic wage deals," he wrote. 
    The analyst cited delivery delays from plane maker Boeing
 BA.N  and also said he expects premium seats to be the next
"revenue battle ground."
    On Tuesday the biggest decliners from the group are American
Airlines and Southwest, down more than 1% followed by Alaska
Air, down 0.8%. Delta shares are ~flat after falling 3.5% on
Monday.
     
    (Sinéad Carew)
     ***** 
    
    
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