• Wed. Jun 22nd, 2022

What to expect from the airline industry’s revenue

Airlines have profited from the economic reopening and the easing of travel restrictions, reversing previous losses suffered as the pandemic took hold.

The pandemic was nothing short of thunderclap for the group as demand for travel vanished overnight. Many operators would have struggled to survive without the generous help of the government. As has been the case with other operators in the broad field of travel, entertainment and hospitality, airline stocks have reached pre-pandemic levels as vaccines were discovered.

You can see it in the graph below which shows the performance of the Zacks Air Transportation sub-sector since the start of 2020. The blue line in the graph represents the Zacks Air Transportation sub-sector while the red line represents the Zacks Air Transportation sub-sector. ‘S&P 500 Index.

Image source: Zacks Investment Research

Please note that the Zacks air transport sub-sector is very large and includes, in addition to major carriers like United UAL, Southwest LUV and others to international operators, traditional transport players like FedEx FDX, UPS UPS and others. .

As you can see in the chart above, the group’s stock market rally has been impressive, but has lagged behind the broader market over time nonetheless.

The group has done better than the market when considering a shorter time horizon, for example the past year or the cumulative period. The graph below shows the group’s performance over the past year.

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Image source: Zacks Investment Research

The reversal of this outperformance trend began in early summer as the Delta variant began to threaten the group’s outlook.

It is important to note here that unlike the group’s recent market downturn, the group’s profitability outlook continues to improve. The graph below shows the group’s stock market performance (blue line) and the trend of aggregate revisions of 12-month EPS estimates (green line).

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Image source: Zacks Investment Research

The graph below presents the overall profit situation of the group on a quarterly basis, with actual results for the last eight quarters and estimates for the next four periods.

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Image source: Zacks Investment Research

Please note that the chart above only represents data for the Zacks Air Transportation sub-sector in the S&P 500 Index.

As you can see above, the group’s profitability turned positive again in the second quarter of 2021 after remaining in the red for the previous five periods. The profitability outlook is expected to improve steadily over the next few periods, but the aggregate third quarter 2021 profit for the group is around half of the pre-Covid profitability level.

The chart below shows the quarterly profit picture of the Zacks Transportation segment, of which the Airline subsector is a part.

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Image source: Zacks Investment Research

The graph below shows the data on an annual basis.

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Image source: Zacks Investment Research

As you can see in the annual chart above, the group’s profitability is expected to exceed pre-Covid levels next year.

S&P 500 earnings outlook

The chart below shows the year-over-year profit and income growth rates for the S&P 500 Index.

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Image source: Zacks Investment Research

As you can see above, the expectations are + 26.3% profit growth and + 13.6% revenue expansion for the current period (Q3 2021), a significant deceleration from the breakneck pace Q2 2021. Keep in mind, however, that much of the profit growth in the second quarter of 2021 is due to easy comparisons to the period a year earlier. Growth rates normalize as the problem of comparisons becomes normal.

The trend of revisions to the estimates for the third quarter of 2021 and beyond is larger than the year-over-year growth rate.

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Image source: Zacks Investment Research

Please note that although the trend of revisions continues, it is weaker than what we saw in comparable periods of the previous two quarters.

A relatively favorable view of this trend of decelerating revisions is that it reflects the conservatism of the Delta variant, setting us up for greater positive surprises as the reporting cycle begins.

On the other hand, this chart could be seen as the start of a revising trend reversal which has been positive since July 2020 and has been a great source of support for the market.

It is difficult, if not impossible, to say which of these two perspectives will come true, but we will be keeping a watchful eye on this trend.

The graph below shows the picture of the earnings on an annual basis.

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Image source: Zacks Investment Research

For more details on the second quarter earnings season and how things are going for the third quarter of 2021 and beyond, please see our weekly earnings trends report >>> Strong Selling Industry Earnings by retail

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.