Oil prices hit a six-year high on July 6 after OPEC+ failed to reach an agreement regarding production levels and talks were postponed indefinitely. While oil prices have declined marginally over the past two days, controlled supply levels should drive oil prices higher in the near term.
Rising oil prices are likely to negatively impact the already fraught airlines industry. In response to rising jet fuel prices, the International Air Transport Association (IATA) warned that oil prices will cast a shadow over the airline industry’s substantial recovery from the pandemic driven slowdown. IATA expects the airline industry to incur losses of $47.7 billion in 2021.
Given the airline industry’s weak recovery, we believe shares of Delta Air Lines, Inc. (DAL), United Airlines Holdings, Inc. (UAL), and American Airlines Group Inc. (AAL) are best avoided now.
Delta Air Lines, Inc. (DAL)
Atlanta, Ga.-based DAL provides scheduled air transportation for passengers and cargo across a global network of more than 300 destinations in more than 50 countries. The company operates through two segments, Airline and Refinery.
On May 3, DAL announced its agreement with Sabre to drive commercial and technological change in the industry.
DAL’s revenues have declined 60% from the same period in 2019 to $4.15 billion in the fiscal first quarter, ended March 31. Its operating loss and net loss came in at $1.40 billion and $1.18 billion, respectively, over this period.
Analysts expect DAL’s revenues to increase 59.5% year-over-year to $27.27 billion in the current year. However, the company’s EPS is expected to be negative in the current year. Shares of DAL have slumped 7.7% over the past month, and 1.7% over the past five days.
It is no surprise that DAL has an overall D rating, which equates to Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
The stock also has a D grade for Value and Stability. Among the 29 stocks in the F-rated Airlines industry, DAL is ranked #15.
To see additional DAL ratings for Growth, Sentiment, Quality, and Momentum, click here.
United Airlines Holdings, Inc. (UAL)
UAL provides air transportation services in North America, Asia, Europe, Africa, the Pacific, the Middle East, and Latin America. It transports people and cargo through its mainline and regional fleets. The company also offers catering, ground handling, and maintenance services for third parties. UAL is based in Chicago, Ill.
On June 29, UAL announced the purchase of 270 new Boeing and Airbus aircraft, representing the largest combined order in the airline's history. Also, in June UAL agreed with Denver-based aerospace company Boom Supersonic to add its aircraft to its global fleet.
UAL’s revenues declined 59.6% year-over-year to $3.22 billion in its fiscal first quarter, ended March 31. Its operating loss increased 42.1% from its year-ago value to $1.38 billion. However, its net loss declined 20.4% year-over-year to $1.36 billion over the period. The company’s loss per share declined 37.5% year-over-year to $4.29.
A $7.26 billion consensus revenue estimate for its fiscal third quarter, ending September 30, 2021, indicates a 186.3% improvement from the same period last year. Analysts expect the company’s EPS to remain negative at least until the close of its current fiscal year.
UAL has lost 12.2% over the past month. The stock lost 2.2% intraday to close yesterday’s trading session at $50.30.
UAL has an overall D rating, which equates to Sell in our proprietary rating system. UAL has an F grade for Growth and Stability, and D for Value. It is ranked #20 in the Airlines industry.
Beyond what we’ve stated above, we have also rated UAL for Momentum, Sentiment, and Quality. Click here to view all UAL ratings.
American Airlines Group Inc. (AAL)
AAL operates as a network air carrier, providing scheduled air transportation services for passengers and cargo. The company offers an average of nearly 6,700 flights per day to nearly 350 destinations in more than 50 countries. AAL is based in Fort Worth, Tex.
On June 30, AAL announced its plan to invest in Vertical Aerospace, a leading U.K.-headquartered engineering and aeronautical business that develops electric vertical takeoff and landing (eVTOL) aircraft. But considering its weak financial performance, it might take a while for the company to emerge as a prominent player in the sustainability transformation zone.
AAL’s total revenues declined 52.9% year-over-year to $4.01 billion in its fiscal first quarter, ended March 31. Its operating loss declined 48.4% from its year-ago value to $1.32 billion. AAL’s net loss came in at $1.25 billion, indicating a 44.2% decline year-over-year. The company’s loss per share stood at $1.97.
The Street expects AAL’s revenues to rise 62.8% year-over-year to $28.22 billion in the current year. Analysts expect the company’s EPS to remain negative at least until next year. Shares of AAL have slumped 16.3% over the past month, and 3.3% intraday.
It’s no surprise that AAL has an overall rating of D, which equates to Sell in our POWR Ratings system. AAL has an F grade for Growth and Sentiment, and a D for Value and Stability. It is ranked #26 in the Airlines industry.
To see additional POWR Ratings for Momentum and Quality, click here.
DAL shares were trading at $42.07 per share on Thursday afternoon, down $0.47 (-1.10%). Year-to-date, DAL has gained 4.63%, versus a 16.03% rise in the benchmark S&P 500 index during the same period.
About the Author: Subhasree Kar
Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.
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