U.S. airline stocks are facing headwinds as the close of summer reveals challenges like rising oil prices and dwindling domestic travel demand, which could adversely affect earnings. The S&P Supercomposite Airlines Index registered a 9.5% decrease in August, marking its most significant monthly drop since December. In line with this trend, Wall Street has reduced its optimism for the sector. Data from Bloomberg shows that analysts trimmed their 2023 earnings-per-share predictions by an average of 15% over the last month for members of this index.
This decline in airline stock values is particularly stark when compared to the index's performance earlier in the year; it had escalated by nearly 29% up to July. Now, however, there seem to be fewer catalysts on the horizon that might uplift the stocks by year's end. Analysts, including Conor Cunningham from Melius Research, have commented on the less-than-rosy outlook for the industry, citing more expensive fuel and reduced fares as significant challenges.
Interestingly, while smaller carriers like Spirit Airlines (SAVE) and Alaska Air Group have struggled due to the shift in demand from U.S. cities to international destinations, legacy carriers such as Delta Airlines (DAL) and United Airlines (UAL) have reaped benefits owing to their robust overseas routes.
Evercore's (EVR) Duane Pfennigwerth points out that the airline industry appears "washed out and oversold," given the surge in fuel prices this summer. Despite these challenges, he believes that aligning estimates with the actual scenario and capitalizing on better seasonality in the fourth quarter can enhance market sentiment. Contrasting the gloomy outlook for airline stocks, the tourism sector displays some silver linings. Notably, cruise lines like Royal Caribbean Cruises (RCL) and Carnival Corp (CCL) have made significant gains in the S&P 500 Index this year. However, investors have consistently withdrawn from the US Global Jets ETF (JETS), which monitors the industry's stocks, suggesting a diminished enthusiasm for airline stocks.
