Airline Stock Roundup: LUV's Bullish Cash Burn Update for Q3, UAL, DAL in Focus

In the past week, Southwest Airlines LUV dominated headlines by virtue of its positive update on cash burn for the September quarter. The bullish forecast on this key metric was primarily owing to improved air-travel demand on the leisure front. Moreover, booking trends have also been encouraging.

Meanwhile, with no confirmation available yet on another round of federal stimulus for the airlines, job cuts are looming large on the industry post Sep 30 (when the current package expires). However, the aviation industry is looking to limit job losses in absence of no further aid. Updates in this respect were available from Delta Air Lines DAL and United Airlines UAL in the past week.

European carrier Ryanair  Holdings RYAAY was also in the news, courtesy of its decision to trim its October capacity due to coronavirus-led travel restrictions. Notably, U.S. carriers like Hawaiian Holdings HA  provided a tepid capacity outlook for the September quarter as mentioned in the previous week’s write-up.

Synopsis of the Past Week’s Top Stories

1.    Southwest Airlines management stated that air-travel demand rebounded in August after shrinking in July and this uptrend has continued so far in September. As a result of this improvement, the carrier came out with an upbeat third-quarter view for cash burn. The metric is now expected to be approximately $17 million compared with approximately $20 million expected previously. To preserve liquidity, the carrier raised $18.7 billion through various means since the beginning of 2020. As of Sep 15, 2020, the company had cash and short-term investments worth $14.8 billion. It also has unencumbered assets of approximately $12 billion.

2.    According to a Reuters report, Delta will be able to avoid involuntary furloughs of its frontline employees except its pilots on Oct 1, courtesy of a large number of employees opting for voluntary separation programs. In a memo to employees, CEO Ed Bastian stated that the company will continue to reduce work hours and executive pays through the end of this year.

3.    Per a Reuters report, leaders of United Airlines pilots’ union (Air Line Pilots Association) voted in favor of approving a tentative deal. Terms of the deal though are kept undisclosed. Notably, the Air Line Pilots Association represents roughly 13,000 pilots of this Chicago-based carrier. By backing this deal, the union inched closer to protecting jobs of nearly 2,850 pilots at United Airlines until June 2021. Following the support of union leaders, the provisional deal will be put to a full vote by the union members from Sep 21.

4.    Ryanair announced that it will slash its October capacity by a further 20% due to travel limitations imposed by European Union governments in the wake of coronavirus. Management stated that these travel constraints, often introduced on short notices, were affecting forward bookings. With additional capacity contractions, this currently Zacks Rank #3 (Hold) low-cost carrier  now expects its October 2020 capacity to decrease from 50% to approximately 40% of October 2019 levels. Even at this reduced schedule, the airline anticipates to maintain a load factor of more than 70% next month.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

5.    Per a CNBC report, American Airlines AAL is planning to begin training pilots on the Boeing 737 MAX aircraft in November. This is a sign that the grounded Boeing 737 MAX aircraft’s return to service is approaching. Notably, the Boeing 737 MAX aircraft has remained grounded since March 2019 following two crashes which killed multiple passengers. Ever since, this aircraft has been under scrutiny and underwent software and other changes. Last month, the Federal Aviation Administration (FAA) issued the list of safety-related changes required for the jets to start flying again. Although, the FAA is going through the final steps before recertifying the aircraft for services, it is yet to set a specific time line for the same.


The following table shows the price performance of major airline players over the past week and during the past six months.

The table above shows that all airline stocks traded in the red over the past week leading the NYSE ARCA Airline Index to dip nearly 2% to $61.91. However, during the course of the past six months, the NYSE ARCA Airline Index has appreciated 60.5% owing to impressive gains at the likes of Gol Linhas GOL, Spirit Airlines and Copa Holdings.

What’s Next in the Airline Space?

Investors will keep track of the updates on the proposed second round of federal financial grant for the airlines

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Southwest Airlines Co. (LUV): Free Stock Analysis Report
Ryanair Holdings PLC (RYAAY): Free Stock Analysis Report
Delta Air Lines, Inc. (DAL): Free Stock Analysis Report
Gol Linhas Aereas Inteligentes S.A. (GOL): Free Stock Analysis Report
United Airlines Holdings Inc (UAL): Free Stock Analysis Report
American Airlines Group Inc. (AAL): Free Stock Analysis Report
Hawaiian Holdings, Inc. (HA): Free Stock Analysis Report
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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.

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