A4A's Bullish Summer Travel Forecast: 3 Stocks in Focus

Maharathi Basu
Robust passenger revenues and modest oil prices are expected to boost airline companies' second-quarter results.

Stocks in the airline space are benefiting from strong demand for air travel. Affordable air fares along with a much-improved job market and rising disposable income have provided consumers an added incentive to opt for air travel. According to data released by the Bureau of Transportation Statistics, 2018 average domestic air fares were down 15.9% from 2014 to the lowest level (inflation-adjusted) since 1995.

Upbeat demand for air travel has boosted passenger revenues thereby bolstering the top lines of carriers. This is because passenger revenues account for the bulk of top line of most airline companies.

Further highlighting the bullish scenario with respect to passenger revenues, Airlines for America (‘A4A’) – the trade organization for leading U.S. airlines – projected that companies in the airline space will make hay in the upcoming summer season (Jun 1-Aug 31).The trade group predicted that the summer of 2019 will be the busiest season of all times for American carriers in terms of air travel. This is because 3.4% more passengers are expected to fly to various destinations over the period compared with the 2018 levels. In fact, this marks the 10th consecutive summer season with year-over-year increase in passengers.

Per the forecast, approximately 257.4 million passengers will be transported through U.S. airlines this summer, which sets a record in itself. In fact, the air travel projection for the season translates into 2.8 million fliers per day. With the U.S. economy on a firm footing and consumer confidence remaining strong, more Americans are taking vacations.

Additionally, the robust financial health of most domestic carriers has prompted them to invest substantially in improving the flying experience for travelers, in a bid to stay afloat in amid stiff competition.

Will Boeing 737 MAX Issues Hurt Performance?

The bullish forecast comes at a time when flight cancellations due to the grounding of Boeing 737 MAX jets following two fatal crashes in a span of five months are prevalent in the United States, thereby causing harassments to passengers. For instance, Southwest Airlines LUV, which has 34 Boeing 737 MAX jets in its fleet, has grounded such jets till Aug 5. United Continental Holdings UAL, which has 14 of such jets in its fleet, has decided to ground them through early July. American Airlines AAL, which has 24 Boeing 737 MAX jets in its fleet, stated that 737 MAX jets would remain grounded till Aug 19. This, in turn, has resulted in the cancellation of approximately 115 flights per day for this Zacks Rank #3 (Hold) carrier. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Against this backdrop, it seems that Boeing 737 MAX jets are unlikely to be available during the most part if not the entire three-month period. Consequently, airlines, especially those with Boeing 737 MAX jets in their fleet would be hoping that flight cancellations do not mar their summer season performance. This because this season has been historically busy for carriers, thereby augmenting their top lines significantly.

In fact, to meet the surge in travel demand, U.S. carriers are increasing the number of available seats by 111,000 per day. The three-month period is likely to see 93,000 additional passengers taking to the skies.

 Stocks in Focus

With demand remaining strong and carriers making efforts to meet the anticipated uptick in demand despite the likely absence of Boeing 737 MAX jets this summer, airline stocks are in focus ahead of the busy summer season.

In view of the enthusiasm, below we have mentioned three airline stocks that should fly high this summer.

One of these stocks holds a Zacks Rank #1(Strong Buy). We have also mentioned two more stocks, which we believe investors should retain in their portfolio to as these carry a Zacks Rank #3.

SkyWest SKYW, through its subsidiaries, operates a regional airline in the United States. SkyWest, based in St. George, UT, currently flaunts a Zacks Rank #1. The Zacks Consensus Estimate for current-year earnings has been revised 3.9% upward in the last 30 days. It has a Growth Score of B.

JetBlue Airways JBLU, based in Long Island City, NY, is a low-cost carrier. The stock carries a Zacks Rank #3. The Zacks Consensus Estimate for current-year earnings has been revised 1.1% upward in the last 30 days. It has a Growth Score of B.

Delta Air Lines DAL, based in Atlanta, GA, is a leading provider of scheduled air transportation for passengers and cargo throughout the United States and internationally. The stock carries a Zacks Rank #3. The Zacks Consensus Estimate for current-year earnings has been revised 2.3% upward in the last 60 days. It has a Growth Score of A.

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United Continental Holdings, Inc. (UAL) : Free Stock Analysis Report
 
Delta Air Lines, Inc. (DAL) : Free Stock Analysis Report
 
JetBlue Airways Corporation (JBLU) : Free Stock Analysis Report
 
American Airlines Group Inc. (AAL) : Free Stock Analysis Report
 
SkyWest, Inc. (SKYW) : Free Stock Analysis Report
 
Southwest Airlines Co. (LUV) : Free Stock Analysis Report
 
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