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Airline Stocks Are Rallying In 2023, Even With Travel Chaos: What Happens Next?

The S&P 500 cash index was higher by 2.8% and some sectors were in the green by much more than that.
American Airlines airplanes sit on the tarmac at LaGuardia airport in New York on January 11, 2023. – The US Federal Aviation Authority said Wednesday that normal flight operations “are resuming gradually” across the country following an overnight systems outage that grounded departures. ED JONES/BENZINGA

So far, 2023 is getting off to good start for investors. Of course, the release of the December Consumer Price Index on Thursday morning for the fourth quarter. American Airlines, which reports earnings Jan. 26, cited strong demand and high fares for the hike in estimates.

Delta Air Lines maintained outlook for “significant” growth in 2023, including EPS of $5-$6 and free cash flow of more than $2 billion.

It expects to grow revenue for the full year 15%-20%.

Analysts polled by FactSet now expect 2023 EPS to increase 64% to $5.26, at the low end of company guidance. They see revenue for the full year growing 14.2%.

“As we move into 2023, the industry backdrop for air travel remains favorable and Delta is well positioned to deliver significant earnings and free cash flow growth,” CEO Ed Bastian said in the earnings release.

The company is on track to achieve EPS of more than $7 in 2024, he added.

But CFO Dan Janki tempered expectations for the start of 2023.

“For the March quarter, we expect non-fuel unit costs to increase 3% to 4% year-over-year, including a full quarter impact from labor cost increases and finalizing the rebuild of our network for the peak summer period,” he said.

Amid higher inflation, consumers are “prioritizing investing in themselves and experience,” Delta CEO Ed Bastian told CNBC in December. Airline companies and the broader travel industry are expected to benefit from this trend favoring experiences over products.

As with other airlines throughout the Covid-19 pandemic, Delta Air Lines posted a string of losses. Delta earned $1.70 per share in Q4 2019 before posting six straight unprofitable quarters. Revenue plunged more than 60% in 2020.

Delta Airlines planes taxi at LaGuardia airport in New York on January 11, 2023 – The US Federal Aviation Authority said Wednesday that normal flight operations “are resuming gradually” across the country following an overnight systems outage that grounded departures. ED JONES/BENZINGA

Delta is expected to return to annual earnings growth in 2022. Both leisure and business travel continue to recover, the carrier said last fall. International travel, especially to Europe, has been particularly strong, it added.

Airlines have been broadly upbeat about travel demand. But some airline stock analysts worry about price increases — including airfares — as the recession risk grows.

The carriers also face higher fuel costs and pilot shortages. They have cut some routes and scaled back capacity expansion, while supply constraints have delayed deliveries of new aircraft.

The U.S. airline industry returned to profitability in 2022 as travel rebounded after the pandemic, highlighted by a busy summer travel season.
 

Produced in association with Benzinga.

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