The Turbulent Times for Airline Stocks
Shares of airline companies have faced a tough month, with various factors contributing to their decline. From Boeing's ongoing problems to blocked mergers and volatile oil prices, the airline industry is facing significant challenges. Additionally, earnings warnings and critical failures of aircraft have further added to the turbulence. This article delves into the reasons behind the decline in airline stocks and the implications for the industry.
Boeing's Ongoing Problems
The month has been particularly challenging for airline stocks, with the NYSE Arca Airline index witnessing a 15% decline, underperforming the benchmark S&P 500 index. The root of the problem can be traced back to Boeing's ongoing issues, which began with the detachment of the door plug on an Alaska Airlines Boeing 737 Max 9. This incident has led to widespread fallout across the industry, resulting in flight cancellations and a class action lawsuit filed against Boeing. The US Federal Aviation Administration and National Transportation Safety Board are conducting investigations, and Wells Fargo analysts have downgraded Boeing, citing concerns about potential damaging findings. As a result, Boeing's shares have plummeted by 22% this month.
Blocked Mergers and Legal Challenges
Apart from Boeing's troubles, the industry has been rocked by legal and regulatory challenges, such as the blocked merger between Spirit Airlines and JetBlue. A federal judge's ruling against JetBlue's proposed acquisition of the discount airline caused a significant impact on their shares. Furthermore, the US Justice Department's lawsuit to stop the deal reflects the increased scrutiny on airline mergers. This legal turmoil has resulted in a decline of about 63% in Spirit Airlines shares and a 16% decrease in JetBlue shares. Additionally, concerns about another proposed merger between Alaska Airlines and Hawaiian Airlines have also affected investor sentiment, leading to a 5% slip in Hawaiian Holdings' shares.
Spirit Airlines Airbus A320 and JetBlue Airlines Airbus A321 airplanes at Los Angeles International Airport on September 11, 2023.
Volatility in Oil Prices and Earnings Warnings
In addition to the legal and regulatory challenges, airline stocks are facing volatility in oil prices, which could have significant implications for their bottom lines. The recent spike in oil prices following US-led strikes on Iran-backed Houthi targets in Yemen has raised concerns about potential supply disruptions from the Middle East, impacting the airline industry. Furthermore, earnings warnings from Delta Air Lines have added to the turbulence, with the company trimming its 2024 earnings outlook due to supply chain issues and global disruptions during the Covid pandemic. This has led to a decline in Delta shares, as well as other major carriers' stocks such as United Airlines Holdings and American Airlines Group.
