Earlier in the year, it seemed like investing on the dip in airline and aviation stocks would potentially produce considerable gains. Gas prices would slide from their teetering highs and so would ticket prices. Then volume on aircrafts would go up, and so would share prices. This formula; however, has not yet been successful in delivering profits for airline investors. Shares continued to tumble today in afternoon trading following a weekend report from an international airline trade group indicating that inflated gasoline expenses and travel disruptions will reduce the industry's annual profit more than initially considered.
The International Air Transport Association said global airlines will earn about $4 billion in 2011. That number represents less than half an earlier forecast of $8.6 billion and less than 25 percent of 2010’s industry profits. Fuel costs in North America appear to have been particularly detrimental to profits. The International Air Transport Associated announced airlines in North America will bring in $1.2 billion this year, $2.9 billion less than last year.
Oil attacked the aviation industry on both ends. Potential fliers often had less cash as more consumer spending dollars were directed to rising prices at the pump and heating costs. Simultaneously, airlines, unable to endure to higher overhead, hiked ticket prices, furthering discouraging travelers.
Elsewhere, the number of international travelers declined somewhat following the multiple disasters in Japan. As the second biggest economy internationally, trips to Japan from the U.S. accounted for roughly an eighth of international flights from the U.S. That business will likely continue to be abbreviated through the rest of the year as risks continue to loom in the nation.
Certainly, that is only one, among a multitude of factors that has led to the increasingly bearish calls from analysts over the last several months. The economy’s recent show of weakness, illuminated by disappointing unemployment data last week, has been driving down predictions, not just in airlines but across the board. Elsewhere, continued worry over European debt has damaged the markets stateside and internationally, as well as weakened international flight numbers.
Currently the NYSE Arca Airline Index, in the wake of this plethora of challenges, is off 16 percent for its high for the year. Still it is over 200 percent higher than its lows in 2009. One thing helping to contribute to the rising index is that there are fewer options right now. The weak period from 2009 to now led to a number of mergers, meaning fewer seats and higher prices.
Still, the remaining airlines are not being celebrated by Wall Street analysts, who began analysts correcting more optimistic expectations early in 2011. A recent analyst survey revealed estimated annual profit cuts of 36 percent for Delta Airline Inc (DAL). Southwest Airlines (LUV), beyond the current host of difficulties, had a very public problem with several of its aircrafts. Estimates for the year have been lowered 27 percent. Southwest was among the more celebrated options to purchase on the dip, following the technical difficulties that pushed down share prices. United Continental Holdings Inc. (UAL) saw 22 percent lower estimates, while US Airways Group (LLC) has profit estimates cut by a massive 56 percent. Jetblue Airways (JBLU) is also looking unfavorable to analsysts, who anticipate 40 percent lower profits when compared with earlier estimates. American Airlines (AMR) is also expected to endure minor losses by year-end.
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