We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Trump Gives Airlines New Lease of Life Amid Coronavirus Mayhem
Read MoreHide Full Article
It is no secret that the coronavirus pandemic is on an exponential rise, resulting in multiple casualties and infecting scores of people globally. This, in turn, crippled equity markets, keeping investors in the lurch. Even though almost all corners of the investing space have been affected by this unprecedented crisis, airlines are among the worst-hit. The fact that the Zacks Airline industry has plunged 54.3% since the beginning of March bears testimony to its struggles.
With passenger demand for air travel almost evaporating in the face of this global health peril, airline stocks appear to be dealt a body blow. As an evidence, February air traffic touched the lowest level since the 9/11 terror attacks on the United States in 2001. The traffic picture is likely to be more lackluster in the coming months.
With air-travel demand hitting rock bottom, airlines including the likes of Delta Air Lines (DAL - Free Report) , American Airlines (AAL - Free Report) and JetBlue Airways (JBLU - Free Report) slashed their capacity. Moreover, they are undertaking a host of cost-cutting measures like freezing hiring and deferring capital expenses. However, these desperate moves seem inadequate for the battered airline stocks to stay afloat as evident from the US airlines’ application for a financial aid from the government to tide over the ongoing crisis.
As a condition for receiving the above-mentioned relief package, airlines had to suspend share buybacks and dividends. Consequently, the likes of Delta, Alaska Air (ALK - Free Report) , Southwest Airlines (LUV - Free Report) and SkyWest (SKYW - Free Report) stalled their shareholder-friendly initiatives while applying for the grant.
In fact, airlines faced severe criticism for seeking government funds as prior to the COVID-19 outbreak, they had not saved money prudently and spent rather lavishly on rewarding their shareholders through dividends/buybacks. Per Guardian research, over the last five years, Delta, American Airlines, United Airlines, Southwest Airlines and Alaska Airlines shelled out $44.9 billion to investors via the above endeavors.
Airlines Fly High on Payroll Support
Airline stocks, which took a massive hit from the advent of the coronavirus disaster, finally had something to cheer about on Apr 14 following an agreement (announced by President Trump) with the Treasury Department pertaining to worth $25 billion in payroll grants. As a result, most airline stocks gained significantly in yesterday’s after-hours trading.
For instance, JetBlue shares were up in excess of 16% as it stands to receive $935.8 million under the Coronavirus Aid, Relief and Economic Security (CARES) Act. Of the stimulus amount, $685.1 million will be through grants, which the company does not have to repay. The balance will be obtained via low-interest loans. Southwest Airlines rose around 5% as it is entitled to earn more than $3.2 billion in aid comprising $2.3 billion plus in payroll grants.American Airlines will receive $4.1 billion in direct support and $1.7 billion in loan.
Will the Aid Suffice?
The package under the CARES Act will take care of sustaining jobs only through Sep 30, 2020. However, the current scenario of extremely tepid air-travel demand is unlikely to reach the pre-coronavirus levels any time soon. Evidently, United Airlines’ CEO Oscar Munoz and president Scott Kirby expect "demand to remain suppressed for months after that, possibly into next year." Moreover, JetBlue’s CEO Robin Hayes warned that "the writing is on the wall", emphasizing that travel demand will not be restored anytime soon.
Whatever be the final outcome, we expect investor focus to remain on this burning issue. To this end, we advise investors to watch this space for further updates.
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2019, while the S&P 500 gained and impressive +53.6%, five of our strategies returned +65.8%, +97.1%, +118.0%, +175.7% and even +186.7%.
This outperformance has not just been a recent phenomenon. From 2000 – 2019, while the S&P averaged +6.0% per year, our top strategies averaged up to +54.7% per year.
Image: Shutterstock
Trump Gives Airlines New Lease of Life Amid Coronavirus Mayhem
It is no secret that the coronavirus pandemic is on an exponential rise, resulting in multiple casualties and infecting scores of people globally. This, in turn, crippled equity markets, keeping investors in the lurch. Even though almost all corners of the investing space have been affected by this unprecedented crisis, airlines are among the worst-hit. The fact that the Zacks Airline industry has plunged 54.3% since the beginning of March bears testimony to its struggles.
With passenger demand for air travel almost evaporating in the face of this global health peril, airline stocks appear to be dealt a body blow. As an evidence, February air traffic touched the lowest level since the 9/11 terror attacks on the United States in 2001. The traffic picture is likely to be more lackluster in the coming months.
With air-travel demand hitting rock bottom, airlines including the likes of Delta Air Lines (DAL - Free Report) , American Airlines (AAL - Free Report) and JetBlue Airways (JBLU - Free Report) slashed their capacity. Moreover, they are undertaking a host of cost-cutting measures like freezing hiring and deferring capital expenses. However, these desperate moves seem inadequate for the battered airline stocks to stay afloat as evident from the US airlines’ application for a financial aid from the government to tide over the ongoing crisis.
Each of the above-mentioned stocks carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Airline Dividends & Buybacks Halted
As a condition for receiving the above-mentioned relief package, airlines had to suspend share buybacks and dividends. Consequently, the likes of Delta, Alaska Air (ALK - Free Report) , Southwest Airlines (LUV - Free Report) and SkyWest (SKYW - Free Report) stalled their shareholder-friendly initiatives while applying for the grant.
In fact, airlines faced severe criticism for seeking government funds as prior to the COVID-19 outbreak, they had not saved money prudently and spent rather lavishly on rewarding their shareholders through dividends/buybacks. Per Guardian research, over the last five years, Delta, American Airlines, United Airlines, Southwest Airlines and Alaska Airlines shelled out $44.9 billion to investors via the above endeavors.
Airlines Fly High on Payroll Support
Airline stocks, which took a massive hit from the advent of the coronavirus disaster, finally had something to cheer about on Apr 14 following an agreement (announced by President Trump) with the Treasury Department pertaining to worth $25 billion in payroll grants. As a result, most airline stocks gained significantly in yesterday’s after-hours trading.
For instance, JetBlue shares were up in excess of 16% as it stands to receive $935.8 million under the Coronavirus Aid, Relief and Economic Security (CARES) Act. Of the stimulus amount, $685.1 million will be through grants, which the company does not have to repay. The balance will be obtained via low-interest loans. Southwest Airlines rose around 5% as it is entitled to earn more than $3.2 billion in aid comprising $2.3 billion plus in payroll grants.American Airlines will receive $4.1 billion in direct support and $1.7 billion in loan.
Will the Aid Suffice?
The package under the CARES Act will take care of sustaining jobs only through Sep 30, 2020. However, the current scenario of extremely tepid air-travel demand is unlikely to reach the pre-coronavirus levels any time soon. Evidently, United Airlines’ CEO Oscar Munoz and president Scott Kirby expect "demand to remain suppressed for months after that, possibly into next year." Moreover, JetBlue’s CEO Robin Hayes warned that "the writing is on the wall", emphasizing that travel demand will not be restored anytime soon.
Whatever be the final outcome, we expect investor focus to remain on this burning issue. To this end, we advise investors to watch this space for further updates.
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2019, while the S&P 500 gained and impressive +53.6%, five of our strategies returned +65.8%, +97.1%, +118.0%, +175.7% and even +186.7%.
This outperformance has not just been a recent phenomenon. From 2000 – 2019, while the S&P averaged +6.0% per year, our top strategies averaged up to +54.7% per year.
See their latest picks free >>