Price slump for U.S. Airline stocks offers opportunity

Profitability remains strong, and fear-driven price drop may have been overblown, Morningstar analysts say.

Vikram Barhat 17 October, 2018 | 5:00PM
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Like every year, U.S. airlines have had their share of turbulence in 2018. There have been allegations of price collusion, lawsuits alleging anti-Semitism, wrongful death litigation, a fatal mid-air engine explosion and other instances of reputational losses and public relations disasters. Further, operations and revenue have been frequently walloped by weather events. American Airlines, for instance, lost US$55 million in revenue due to flight cancellations forced by Hurricane Florence last month. Nationwide, more than 1,500 flights were cancelled as the hurricane wreaked havoc in its path.

Yet, airlines are faring stronger than ever. The industry is projected to make US$33.8 billion in net profit this year, according to the International Air Transport Association (IATA). The bulk of the global profit (44%) will come from North American carriers, which are expected to post a net profit of US$15 billion for 2018.

Industry consolidation has played its part by driving roughly 80% of U.S. domestic market share into the hands of four major carriers, partially alleviating the excess supply issue that historically plagued the airline industry and improving margins, says Morningstar equity analyst Danny Goode.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
American Airlines Group Inc20.90 USD1.85Rating
Delta Air Lines Inc42.59 USD2.40Rating
Southwest Airlines Co52.32 USD3.30Rating

About Author

Vikram Barhat

Vikram Barhat  Vikram Barhat is a Toronto-based financial writer specializing in investing, stock markets, personal finance and other areas of the financial services industry. He also writes for CNBC, BBC, The Globe and Mail, and Toronto Star.

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