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Airline Stock Roundup: AAL Buoys Optimism on Cash Burn, DAL, RYAAY in Focus

Maharathi Basu

In the past week, American Airlines AAL grabbed headlines following the announcement that it hopes to reduce its cash burn rate to zero by Dec 31, 2020. Notably, the carrier was also in news in the previous week when it issued a bullish update on July capacity.

Per Delta Air Lines DAL management, the second-quarter 2020 top line is expected to plunge 90% year over year, mainly due to the coronavirus-induced passenger revenue slump. Echoing similar sentiments, United Airlines UAL anticipates an 88% year-over-year reduction in second-quarter total revenues.

Meanwhile, European low-cost carrier Ryanair Holdings RYAAY CEO Michael O’Leary reportedly said that the airline will incur a net loss in the band of €200-€300 million ($226-$339 million) for fiscal year 2021 (ending Mar 31, 2021).

Recap of the Past Week’s Most Important Stories

1. American Airlines predicts second-quarter 2020 revenues to tank approximately 90% year over year. Capacity in the period is expected to plummet roughly 75% year over year. However, owing to the recent improvement in air-travel demand alongside cost-cutting initiatives, the Zacks Rank #3 (Hold) projects cash-burn rate to fall to nearly $40 million per day in June from $100 million in April. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

2 Like American Airlines, Delta hopes to reduce its average daily cash outflow to zero by 2020-end. Moreover, this Atlanta, GA-based carrier envisions the demand-recovery environment to be better on the domestic front than in the international markets. As a result, the carrier added 100 domestic flights in June. Moreover, it plans to continue adding flights in the third quarter.

3. Backed by its focus on operating cargo-only flights as passenger revenues decline in the current scenario, United Airlines expects cargo revenues to surge more than 30% year over year in the June quarter. Additionally, owing to its cost-cutting measures, this Chicago-based carrier expects second-quarter operating expenses to decrease 53% year over year. Moreover, second-quarter average daily cash-burn amount is expected to be at the lower end of the $40-$45 million guided range. In the third quarter, the same is forecast at almost $30 million per day. The company is focused on achieving capital expenditure savings of more than $2.5 billion for the full year, which will lower its capital budget to below $4.5 billion. Moreover, United Airlines expects to end the third quarter of 2020 with total liquidity worth $17 billion.

4. Driven by its cost-controlling initiatives, Ryanair reduced its average weekly cash-burn rate to around €60 million in May from approximately €200 million in March. Additionally, the carrier expects to rebound from a forgettable fiscal 2021 to be profitable in fiscal 2022. However, O’Leary said that “Everything will depend on how people will fly between September and March and that there is no second-wave outbreak”.

5. With the coronavirus pandemic disrupting air-travel demand, LATAM Airlines’ LTM May traffic dived 96.5% on a year-over-year basis. As this Latin American carrier trimmed capacity to cope with the bleak demand scenario, consolidated capacity (measured in available seat miles/ASMs) contracted 93.3%. Meanwhile, consolidated load factor dropped 39.8 percentage points to 43.8%. Passenger count slumped 96.7%.

Performance

The following table shows the price movement 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 in the past week due to fears over a second wave of coronavirus. Further, this bearish environment caused 13.6% depreciation in the NYSE ARCA Airline Index to $59.55. Over the course of the past six months, the NYSE ARCA Airline Index has declined 45.6%.. 

What's Next in the Airline Space?

Investors will keenly wait and watch for further coronavirus-related updates and their impact on air travel.

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Ryanair Holdings PLC (RYAAY) : Free Stock Analysis Report
 
Delta Air Lines, Inc. (DAL) : Free Stock Analysis Report
 
United Airlines Holdings Inc (UAL) : Free Stock Analysis Report
 
American Airlines Group Inc. (AAL) : Free Stock Analysis Report
 
LATAM Airlines Group S.A. (LTM) : Free Stock Analysis Report
 
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