• Wed. Oct 5th, 2022

Delays and cancellations figured in another pandemic-hit quarter for the aviation industry, but compared to the disastrous 2020, 2021 was more favorable to US airlines according to earnings estimates. Although investors are hoping for a bullish 2022, the road ahead may still be bumpy and frustration may remain. U.S. airline earnings in the fourth quarter will likely provide more guidance on Thursday before markets open.

Airlines see the glass half full

The omicron variant was the final punch against the already buttery travel sectors. Appearing just before the most sensitive Christmas holiday season, along with a series of winter storms, border checks and record sick calls from employees, airlines have faced another huge setback in their operations in America at the end of 2021. The hiring process was even more confusing. Despite receiving more than $60 billion in federal aid, most airlines have been urging workers to retire early as flights remain subdued and making a profit is a struggle.

In equity markets, unlike other resilient sectors such as the technology sector, the aviation industry is still performing below its pre-pandemic levels despite the rapid rally in early 2021, lagging behind the entire S&P 500 community over the past two years. Optimism, however, is growing that the latest Omicron variant is a point closer to the peak than just another wave in the pandemic cycle, with investors expecting some recovery in the coming summer of 2022 for the entire travel sector, as the flight engagement of passengers could become more sustainable.


Risks to face, America could do better

Of course, the brighter outlook is still largely tempered by caution given the unpredictable twists and turns of covid. Moreover, the task will not be easy in practice, and it may still be a few years before companies fully heal their wounds. Global airlines have absorbed an exceptional amount of leverage from governments, bond markets and shareholders over the past two years, with net debt reaching $397.9 billion in 2021 from $293.7 billion in 2019. This is compared to an EBIDTA of -$8.6 billion in 2021, which remained in the negative zone for the second consecutive year, and $9.1 billion in 2019; EBIDTA is an indication of underlying gross profit, calculated by adding taxes, interest, depreciation and amortization to net profit.

Apparently companies will continue to use their flexible low-price strategy to entice people to travel this year, and that could require more cash to improve balance sheets if energy and other essential costs remain high. That said, the aviation industry is uneven and some regions could perform better than others, with International Air Transport Association sources predicting a profitable year for US airlines in 2022 on falling net after-tax profits. in Europe and Asia.


Delta profits beat estimates, US airlines next targets

Delta Airlines released earnings for the final quarter of 2021 last week, beating analysts’ estimates for quarterly revenue and earnings per share (EPS). The full year generated earnings after a sharp decline in 2020, and while management expects a depressing start to 2022, it is “positioned to generate healthy earnings in the June, September and December quarters, which will translate into a significant profit in 2022.” Debt reduction will be its top priority, aiming to bring its balance sheet down to investment-grade metrics by 2024.

Although Delta Airlines has already established sentiment in stock markets, traders will also be interested to know how major US carrier American Airlines fared on Thursday.

Expectations point to a 4.4% quarterly increase and a 132.6% annual increase in revenue to $9.36 billion in the last three months of 2021. On the other hand, EPS is expected to have declined to a Faster pace at -$1.47 vs. -0.99 previously, but this could be softer than the $3.86 reduction at the same time last year.

Investors will also pay close attention to 2019 comparisons after the company said total revenue would be down 17% from pre-pandemic levels.

Based on the statistics above, US airlines appear to be lagging behind Delta airlines, while a number of analysts have recently lowered their price targets for the company, with Refinitiv analysts broadly assigning a sustain note.

Perhaps his aggressive recruiting steps created additional costs. Delays and quality issues in Boeing deliveries will also be a burden this summer, as the Fort Worth, Texas-based company plans fewer international flights than originally planned.


From a technical standpoint, its stock is still on a bearish trajectory from the June high and downside risks have resumed following the pullback below the 20-day simple moving average (SMA) support, which currently crosses the neckline of a bullish double bottom. pattern around 6:50 p.m. If the earnings event disappoints, with the price pulling back below 17.50, the spotlight will turn to the 1-year low at 16.15.

On the upside, the bulls will need to retrace above 18.50 and push past the 19.30 mark in order to access the upper line of the downtrend channel and the 200-day SMA at 20.54. Higher, the next target will be the November high at 22.45.