Earnings Recap: What’s Next for the Airlines?

This week was a rough week on Wall St with Airlines and Bank reporting quarterly earnings. While the stock market has been loving tech and several consumer stocks, the financial and travel industries have not felt the love. Overall, Airline, Hotel, Cruise, and Casino stocks remain beaten down, although a few companies have recovered from their March lows. Here’s a couple of key news of the future of the Airline industry and Airline Stocks.

Airlines Stocks are Improving Cash Burn

Delta Airlines was one of the major airlines to report last week. While the earnings was nothing short of terrible, the company did have a few positives. Delta’s daily cash burn was 18 million per day in the last quarter, down from 43 million in Q2. At the height of the pandemic, Delta was losing 43 million per day, but that number has been reduced by 25 million. United Airlines also saw a similar decline and is currently burning 25 million per day down from 40 million in Q2. The declining rate of cash burning will help airlines in the short term.

Travel Has not Increased Significantly

Although airlines are no longer burning cash at an exorbitant rate, daily travel has not increased significantly. Data from TSA’s website shows the daily number of fliers at over 973 thousand on October 16th compared to 2.6 million on October 16th, 2019. While travel has increased almost ten fold since the onset of the pandemic where the total number of daily travels was just around 100 thousand per day, overall travel is still down more than 60% compared to last year. Barring a major change or update with the Covid vaccine, it seems like airlines will continued to struggle. In their recent earnings call, Delta Airlines noted that they do not expected travel demand to recover until at least 2022. Other large airlines have made similar statements as well.

Are Airlines Prepared?

While revenue is down YOY and airlines continue to burn through their cash reserves, travel has begun to slowly rebound. In addition, most airlines have been able to rearrange their fleet and retire aging planes such as Boeing 757, older generation airbuses, and even MD80(American Airlines). Airlines have been able to reduce operating cost and remove older gas guzzling planes. In addition, Airlines have seen their credit card revenue continue to soar in recent years. With the extreme value of credit card partnerships, the major airlines have been able to leverage loyalty programs for cash. In short, airlines like Delta have been able to sell “miles or points” to card issuers like American Express and Chase in a large bulk discount. By creating a solid amount of cash reserves Airlines look a lot more prepared for uncertainty than early March.

What are my Plans for Investing?

Take this with a grain of salt, but I am slowly investing into airlines in hopes of a recovery in the next year or two. I’m a huge fan of Delta, often flying my brother on Delta to and from college. I also think I will be investing into Southwest and maybe Alaska Airlines. I think both have potential for a nice rebound and solid financials. Last of all, I will be carefully watching Boeing(BA). I think Boeing has huge upside after losing more than half of their market cap due to covid.

Disclaimer: I am not a financial expert and this is not information or advice to buy or sell a security.

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