© Reuters. FILE PHOTO: An American Airlines Airbus A321-200 takes off from Los Angeles International Airport (LAX) in Los Angeles, California, U.S. March 28, 2018. REUTERS / Mike Blake / File Photo
By Rajesh Kumar Singh
CHICAGO (Reuters) – Air lines are back up and running. That is the message the major US carriers are sending to investors after grappling with uncertainty caused by the coronavirus for two years.
With travel demand skyrocketing following the failure of the virus’s Omicron variant earlier in the year, American Airlines (NASDAQ:) Group, United Airlines and Alaska Air (NYSE 🙂 Group Inc on Thursday said its revenue for the current quarter will surpass pre-pandemic levels even if its capacity remains lower than in 2019.
Therefore, all expect to be profitable in the quarter to the end of June. Last week, rival Delta Air Lines (NYSE:) also forecast a return to quarterly profit, citing “historically” high bookings.
“The pent-up wave of air travel demand is shedding light on the long-term bleak and bleak sentiment around major airlines,” said Colin Scarola, vice president of CFRA Research.
The pace of demand recovery as well as a bullish outlook have helped airline stocks cushion their losses since the outbreak of the pandemic. The NYSE Arca Airline index is still down 32% from where it was in mid-February 2020 – but is up 37% since early March.
The CFRA on Thursday raised its 12-month price target for shares of United Airlines Holding Inc by 37% to $63 after the Chicago-based carrier said it would post its highest quarterly revenue in a year. history.
BRIDGE DRIVERS
While the sharp increase in bookings was mainly driven by leisure travelers, carriers said reopening offices and easing border restrictions strengthened the outlook.
American Airlines Group For example, Inc said business and government travel revenue as a percentage of 2019 levels increased 27 percentage points in the quarter through March from the previous quarter.
CEO Robert Isom told investors during an earnings call. “We expect that to continue as more companies reopen their offices.”
United expects a 25% growth in transatlantic traffic this summer. The airline said even parts of Asia are recovering.
Booming demand is also helping carriers cope with rising fuel costs, which have more than doubled in the past year.
Fuel is the industry’s second-biggest cost after labor, but major U.S. airlines are not as hedged against volatile oil prices as most European airlines. They often seek to offset the increase in fuel costs with higher fares.
LIMITED CAPACITY
According to data from research firm Cowen, airfares are up more than 50% year-on-year. United, which is passing most of the fuel costs on to customers, said business, entertainment and freight demand remained strong despite higher fares.
Capacity constraints at airlines due to staff shortages and delayed aircraft deliveries mean demand is outstripping supply, boosting the industry’s pricing power.
Some analysts worry that rising ticket prices and rising inflation could dampen travel spending. However, United CEO Scott Kirby (NYSE:) said the worsening pilot shortage in the country will make it difficult for most airlines to implement capacity building plans, boosting total revenue. on every seat in the industry.
“You’ve put all of that together, and we feel very optimistic,” Kirby said on the company’s earnings call.
