U.S. Airlines Industry, already suffering from the current market volatilities including rising fuel prices, braces for another catastrophe called Hurricane Irene.
Hurricane Irene poses a serious threat to this crippling industry as it is expected to cause severe damage to the northeastern U.S. National Hurricane Center has already issued warnings regarding Irene, a Category 3 storm with wind speeds of approximately 115 miles per hour, coming from the Bahamas and expected to hit the U.S. East Coast by the end of this week.
As a result, U.S. air carriers are increasingly dropping flights to the East Coast airports, re-scheduling flights and moving away aircraft to avert the peril. Further, increasing number of passengers are canceling their flights to the East Coast given the Hurricane alert. In a bid to attract customers, carriers have slashed prices for rebooking their tickets on later dates.
The impending natural threat has led to a drop in airlines’ share prices. Carriers like Southwest Airlines (LUV), US Airways (LCC), Delta Air Lines (DAL), American Airlines (AMR) and United Airlines (UAL) are expected to suffer huge losses as major cities in the northeast region including New York, Washington, Philadelphia and Boston, are expected to be hit by Irene. These cities are the serving grounds for seven major airports located in this region. Industry sources project an estimated loss of approximately $20 billion and insured losses of nearly $14 billion for these airline companies.
U.S. Airlines companies remain challenged by the staggering operating cost owing to sky rocketing fuel prices, and the massive earthquake in Japan. Consequently, they were forced to increase fares and reduce capacity to combat rising costs and lower demand. The increased ticket prices have so far been accretive but these carriers are still struggling to pass on higher fuel costs to the customers.
Airline capacity still remains at a low level but is expected to grow 5.8% in 2011 compared with 4.4% in 2010, according to data published by the International Air Transport Association (IATA).
The airline industry has so far remained afloat owing to the ongoing market recoveries as evidenced by higher traffic and air travel demand. But the question whether the industry can counter the contingencies and deliver earnings growth this year and beyond remains unanswered. The latest profit outlook represents a 75% decline from the 2010 level. It will be no surprise if actual results meet the estimates given the prevailing market conditions.
Currently, we have long-term Neutral recommendations on Delta Airlines, United Continental Holdings, Southwest Airlines and JetBlue.
AMR CORP (AMR): Free Stock Analysis Report
DELTA AIR LINES (DAL): Free Stock Analysis Report
US AIRWAYS GRP (LCC): Free Stock Analysis Report
SOUTHWEST AIR (LUV): Free Stock Analysis Report
UNITED CONT HLD (UAL): Free Stock Analysis Report
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