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

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 Inc14.04 USD-10.34
Delta Air Lines Inc29.55 USD-6.78
Southwest Airlines Co36.38 USD-11.76

About Author

Vikram Barhat

Vikram Barhat  Vikram Barhat is a freelance writer.