Tag: Inc. (DAL)

Clear Skies Ahead? Can US-China Flights Propel 3 Airliners for Takeoff?

Posted on by The INO.com Team

With the pandemic firmly in the rear-view mirror, consumers are ever keener to redeem their pile of airline miles on other travel rewards on their credit cards for new experiences through “revenge travel.” Revenge travel has its origins in “baofuxing xiaofei” or “revenge spending,” an economic trend that originated in 1980s China when a growing middle class had an insatiable appetite for foreign luxury goods.

Since e-commerce, albeit with a few hiccups in the supply chain, was able to satiate the appetite for goods through the pandemic, Americans are now going above and beyond to compensate for the years spent indoors trying to substitute real experiences with virtual ones.

The trend is expected to gain further momentum with the relaxation of restrictions on international travel that were put in place by China as part of its strict and controversial “Zero-Covid” policy. Consequently, air traffic between the U.S. and China is expected to double in volume by the end of October.

According to an order by the U.S. Transportation Department, each country will gain an additional six weekly round-trip flights as of September 1, up from the current 12, with the total number of flights for each nation planned to rise to 24 by October 29.

In this context, here are three U.S airlines that stand to benefit the most from the persistent tailwind:

On July 13, Delta Air Lines, Inc. (DAL) reported record revenues and earnings for the fiscal second quarter driven by strong demand for international travel, premium seals, and a 22% decline in fuel expenses. The Atlanta-based airline’s adjusted revenue and EPS came in at $14.61 billion and $2.68, compared to consensus estimates of $14.49 billion and $2.40, respectively.

Given that airlines conduct the bulk of their business in the second and third quarters, DAL hiked its 2023 earnings forecast to an adjusted $6 to $7 a share, up from its previous estimate at the high end of a $5 to $6 per share range.

United Airlines Holdings, Inc. (UAL) has also been on a purple patch which has seen the carrier posting record quarterly earnings and forecast a strong third quarter amid an unprecedented domestic and international travel boom.

The carrier’s total revenue came in at $14.18 billion, compared to consensus estimates of $13.91 billion. Its net income came in at $1.08 billion, which resulted in an adjusted EPS of $5.03 for the quarter that surpassed Street expectations of $4.03.

International flights made up 40% of the revenue, but the segment is growing faster than domestic ones amid the overdue relaxation of strict Covid restrictions overseas. 

Despite ten consecutive interest-rate hikes by the Federal Reserve, it isn’t difficult to connect the dots and understand why American Airlines Group Inc. (AAL) has had to turn to bigger airplanes, even on shorter routes, and jumbo-jets, such as the Boeing 747 and the Airbus A380, are being brought back to help ease airport congestion and work around pilot shortages.

As a result of this tailwind, AAL’s revenue for the fiscal second quarter topped analyst estimates to come in at a record $14.06 billion, up 4.7% year-over-year. With the airline’s executives bullish on travel demand, particularly for international trips, the operator has raised its earnings outlook for the fiscal year 2023.

Dark Clouds Around the Silver Lining

“If something cannot go on forever, it will stop.” The obviousness of this observation made by Herb Stein was what made it famous.

Amid widespread convictions that pent-up demand for travel will be a multi-year demand set, it is easy to get carried away by the “pent-up demand” and “revenge travel” narrative.

However, the rise of remote work and virtual teams, facilitated by contemporary collaboration and productivity tools, seems to have become an immune and immutable remnant of the cultural sea-change our work and lives had to adopt and adapt to during the pandemic, new reports give us reasons to doubt whether business travel is ever going back to normal.

In such a situation, with traveling for leisure being an occasional indulgence in most of our lives, there are risks that the pent-up demand might not be enough to sustain the momentum that is propelling the growth performance of DAL and other airlines, which are primarily in the business of ferrying passengers.

Moreover, with ticket prices at all-time highs and the stash of pandemic stimulus cash, fueling the leisure travel boom expected to run out over this quarter, it is unsurprising to find tricks and trends, such as ‘skip-lagging’ and consumers trading down on travel being on the rise.

Across the Pacific, with the Chinese economy currently battling triple threats of deflation, chronically high youth unemployment, and an ever-intensifying real-estate debt crisis, it could be unrealistic to expect any appreciable recovery in overseas travel demand among the aging, shrinking, and deurbanizing Chinese population that’s holding on to its savings for dear life amid macro-economic uncertainties that could bring about a lost decade.

Moreover, geopolitical relations between the U.S. and China have been souring because of differences regarding the latter’s territorial claims. The trade war between the two superpowers is intensifying amid restrictions on exports of semiconductor chips and investments in other cutting-edge technology by the former, and the latter upping the ante won’t help matters either as far as civil aviation between the two countries is concerned.

Bottomline

While U.S. air carriers and their Chinese peers would want nothing more than for passenger demand to stay strong and, perhaps, keep growing, the most likely case would be a return to seasonality and cyclicality, as is typical of the airline industry.

However, the possibility of passenger demand falling off a cliff and investors rushing for the exits only to find that the clock struck midnight and the chariot turned back to a pumpkin can’t be completely ruled out.

Either way, every flight that takes off has to land at some point. However, amid widespread tail risks, investors, both current and prospective, would be wise to fasten their seatbelts because the skies ahead are anything but clear.

Is Singapore Airlines (SINGY) an Attractive Buy Despite Denying Air India Stake Increase?

Posted on by The INO.com Team

On June 15, news broke that Singapore Airlines Limited (SINGY) had expressed interest in increasing its 25.1% stake in the Tata Group-operated Air India, secured as part of its merger with Vistara that was announced in November 2022 and due to be completed by March 2024. The report claimed that SINGY could gradually increase its stake to 40% to have more skin in the game.

However, the report was soon followed by a denial by SINGY, with its spokesperson confirming that there is no change in SIA’s position from the November 2022 announcement.

However, Goh Choon Phong, the CEO of SINGY, reaffirmed his support by stating, “With this merger, we have an opportunity to deepen our relationship with Tata and participate directly in an exciting new growth phase in India’s aviation market.”

The salt-to-steel conglomerate Tata Group operates three airlines in India: Air India (with Air India Express as its low-cost subsidiary), Air Asia India, and Vistara (a 51:49 joint venture between Tata Sons and SINGY).

The merger of Vistara and Air India into a single entity (Air India), with SIA investing INR 20.59 billion, is under review by the Competition Commission of India (CCI).

With SIA’s expertise in operating a successful airline, particularly when dealing with powerful players such as IndiGo as well as international competition like Emirates and Qatar Airways, it is understandable why Air India might have reportedly been keen on a potential stake increase.
Pinch of Salt

“If something cannot go on forever, it will stop.” The obviousness of this observation made by Herb Stein was what made it famous.
In our June 13 article, we discussed how, despite air carriers turning to bigger airplanes, even on shorter routes and jumbo-jets, such as the Boeing 747 and the Airbus A380, being brought back to help ease airport congestion and work around pilot shortages, Delta Air Lines, Inc. (DAL) wishful extrapolation of the narrative of “revenge travel” could rapidly unravel.

While there remain valid reasons to doubt whether business travel is ever going back to normal and that the pent-up demand might not be enough to sustain the momentum, the battle for Indian skies comes with its own set of challenges.

When the facts, such as 90% of wage earners in India earn INR 25000 or below, the seemingly unending exodus of millionaires from India, and Indigo ordered 500 Airbus aircraft soon after Air India’s combined order of 470 aircraft from both Boeing and Airbus, are taken into consideration, it only takes willful suspension of disbelief to equate low penetration with growth potential.

Hence the possibility that civil aviation in India could be a bubble waiting to burst or at least a profitability sink for air carriers can only be ignored by investors, including SINGY, at their own peril.

Safer Alternative

With The Boeing Company (BA)still on the back foot and playing catch up to its European rival, Airbus SE (EADSY), the latter, with ROCE and ROTC better than the industry average, could be a common denominator that could give investors (relatively) safe exposure to the heated battle for a greater share of the pie of the Indian sky.

5 Best Performing Leisure Stocks to Buy in 2023 Summer

Posted on by The INO.com Team

With the pandemic well and truly in the rearview mirror, for most Americans, the onset of summer can only mean one thing: increased consumption. However, e-commerce, albeit with a few hiccups in the supply chain, was able to satiate the appetite for goods through the pandemic.
Hence, Americans are now going above and beyond to compensate for the years spent indoors trying to substitute real experiences with virtual ones. Think camping, cookouts, pool parties, and weekend trips.

Consumers are ever keener to redeem their airline miles on other travel rewards on their credit cards for new experiences through revenge travel.
Consequently, airlines, such as American Airlines Group Inc. (AAL) , have turned to bigger airplanes, even on shorter routes, to help ease airport congestion and find their way around pilot shortages, while Ed Bastion, CEO of Delta Air Lines, Inc. (DAL) revealed, “We’ve had the 20 largest cash sales days in our history all occur this year.”

Moreover, as the consumer price index only grew by 4% year-over-year, which is the slowest in 2 years, a pause in interest-rate hikes by the Federal Reserve could add further momentum to the jump of 0.8% in spending in April.

The increased demand for, and consequently expenditure on, services and experiences are also evident in the recent employment data, with leisure and hospitality adding 208,000 positions out of the expectation-beating private sector employment increase of 278,000 for the month of May. The sector was also a notable contributor to the increase of 339,000 in non-farm payrolls for the month.

Given the above, leisure stocks could be smart investments to capitalize on the increased levels of outdoor activity. Here are a few stocks in the realm of traveling or recreational activities that stand to gain during the summer.

The Walt Disney Company (DIS)

While the global entertainment giant has recently been in the news for its ongoing feud with Gov. Ron DeSantis, outside the political and legal arena, DIS is going through a significant transition under the leadership of its returned CEO, Robert A. Iger.
In addition to the Disney Entertainment and the ESPN divisions, the rest of DIS’ businesses will be organized under the existing parks, experiences, and products division.

As a result, DIS reported significant growth at its theme parks during the fiscal second quarter, which saw a 17% increase in revenue to $7.7 billion, with around $5.5 billion contributed by theme-park locations. Moreover, its cruise business also saw an increase in passenger cruise days as guests spent more time and money visiting its parks, hotels, and cruises domestically and internationally during the quarter.

Marriott International (MAR)

Under various brand names, such as JW Marriott, The Ritz-Carlton, and St. Regis, MAR operates, franchises, and licenses hotel, residential, timeshare, and other lodging properties through two geographical segments: U.S. & Canada and International.

Over the past three years, MAR’s revenue has grown at a 10.6% CAGR. During the same time horizon, the company’s EBITDA and net income have grown at 22.2% and 43.4% CAGRs, respectively.

On June 5, MAR announced its plans to further expand in the affordable midscale lodging segment, following its recent entry into the segment with City Express by Marriott in Latin America.

While the soon-to-be-launched brand has not yet been named, it is currently being referred to as Project MidX Studios. The affordable midscale extended stay brand is intended to deliver reasonably priced modern comfort for guests seeking longer stay accommodations in the U.S. & Canada.

Pool Corporation (POOL)

POOL is a wholesale distributor of swimming pool supplies, equipment, and related leisure products. The company also distributes irrigation and landscape products in the United States.

Over the past three years, POOL’s revenue has grown at a 22.1% CAGR. During the same time horizon, the company’s EBITDA and net income have grown at 37.5% and 37.2% CAGRs, respectively.

On May 4, POOL announced an increase in its share repurchase program to a total authorization of $600 million, along with a 10% increase in the quarterly cash dividend to $1.10 per share.

Acushnet Holdings Corp. (GOLF)

The Fairhaven, Massachusetts-headquartered company designs, develops, manufactures, and distributes golf products. It operates through four segments: Titleist golf balls; Titleist golf clubs; Titleist golf gear; and FootJoy golf wear.

Over the past three years, GOLF’s revenue increased at a 12.4% CAGR, while its EBITDA grew at 18% CAGR. During the same time horizon, the company’s net income has also grown at a 30.6% CAGR.

On February 7, GOLF announced the acquisition of the Club Glove brand, including trademarks, domains, and products, from West Coast Trends, Inc. Founded in 1990, Club Glove is the preferred choice by the overwhelming majority of PGA Tour, LPGA Tour, and PGA Club Professionals, and its patented travel gear has long been recognized among the industry’s most innovative and reliable products.

During the fiscal first quarter that ended March 31, 2023, GOLF’s net sales increased by 13.2% year-over-year to $686.3 million. During the same period, the company’s adjusted EBITDA increased by 22.3% year-over-year to $146.8 million, while the net income attributable to it grew by 15.2% year-over-year to come in at $93.3 million.

Johnson Outdoors Inc. (JOUT)

For Americans who find the great outdoors and road trips more akin to their idea of freedom and the spirit of adventure, JOUT manufactures and markets branded seasonal outdoor recreation products used primarily for fishing, diving, paddling, and camping. The company’s segments include Fishing; Camping; Watercraft Recreation; and Diving.

Over the past three years, JOUT’s revenue increased by 11% CAGR, while its total assets have increased by 11.6% CAGR during the same time horizon.

Due to an improved supply chain situation and increased travel, during the second quarter of the fiscal that ended March 31, JOUT’s net sales increased by 7% year-over-year to $202.1 million. During the same period, the company’s net income came in at $14.9 million, compared to $9.9 million during the previous-year quarter.

Will “Revenge Travel” Keep Delta Air Lines (NYSE DAL) Stock Soaring?

Posted on by The INO.com Team

Delta Air Lines, Inc. (DAL) reported a wider-than-expected loss for the first quarter 2023. However, the carrier’s CEO, Ed Bastian, couldn’t sound more optimistic about its prospects. Two factors drove this dichotomy.

Firstly, the carrier cited its net loss of $363 million, or 57 cents per share, in what has seasonally been the weakest quarter of the year, partly due to a new, four-year pilot contract that includes 34% raises. Moreover, the bottom line is still an improvement over the net loss of $940 million, or $1.48 per share, during the year-ago period when travel demand was still recovering.

Secondly, and more importantly, with the pandemic firmly in the rear-view mirror, consumers are ever keener to redeem their pile of airline miles on other travel rewards on their credit cards for new experiences through revenge travel. Revenge travel has its origins in “baofuxing xiaofei” or “revenge spending,” an economic trend that originated in 1980s China when a growing middle class had an insatiable appetite for foreign luxury goods.

Since e-commerce, albeit with a few hiccups in the supply chain, was able to satiate the appetite for goods through the pandemic, Americans are now going above and beyond to compensate for the years spent indoors trying to substitute real experiences with virtual ones.

Even “pent-up demand” turned out to be an understatement when Ed Bastion and his team at DAL found the gap between inherent demand for U.S. travel that couldn’t be met over the past three years, based on “any kind” of historical pattern to come in at $300 billion. The pleasantly surprised CEO revealed, “We’ve had the 20 largest cash sales days in our history all occur this year.”

Even corporate bookings have been recovering, with domestic sales in March 85% back to 2019 levels. The carrier also got a boost in its loyalty program with the contribution from its co-branded credit card partnership with American Express (AXP) coming in at $1.7 billion in the previous quarter, up 38% year-over-year.

Because of this explosive demand, DAL has forecasted its top and bottom-line performance for the second quarter to exceed analysts’ estimates. Mr. Bastion expects his airline to clock an operating profit of $2 billion, at par with Q2 of 2019, with lower capacity and higher fuel prices, while being the only airline with all the labor contracts in place.

As a result, the Atlanta-based carrier expects sales in the current quarter to increase by 15% to 17% over last year, with adjusted operating margins of as much as 16% and adjusted earnings per share between $2 to $2.25.

The confident CEO has also brushed off the potential consumer pullback in spending while expressing the conviction that pent-up demand for travel will be a multi-year demand set.

According to him, revenue from premium cabins like the first class was outpacing the revenue from coaches, and while sales professionals have moved partially online, consulting and professional service have been the highest volume contributors. They are expected to remain so in the foreseeable future.

How the Market Reacted?

Quite positively, in a nutshell. DAL’s stock has gained 20.5% over the past two months compared to 4.7% for the S&P 500. It is trading above its 50-day and 200-day moving averages and close to its 52-week high.

Pinch of Salt

“If something cannot go on forever, it will stop.” The obviousness of this observation made by Herb Stein was what made it famous.
At times such as these, when air carriers have turned to bigger airplanes, even on shorter routes, and jumbo-jets, such as the Boeing 747 and the Airbus A380, are being brought back to help ease airport congestion and work around pilot shortages, it is easy to get carried away by the “pent-up demand” and “revenge travel” narrative.

However, it might be wise to consider certain things before indulging in the willful suspension of disbelief and extrapolating beyond the foreseeable future, like we are all guilty of doing in case of working from home, Great Resignation, and “quiet quitting.”
Since the rise of remote work and virtual teams, facilitated by contemporary collaboration and productivity tools, seems to have become an immune and immutable remnant of the cultural sea-change our work and lives had to adopt and adapt to during the pandemic, new reports give us reasons to doubt whether business travel is ever going back to normal.

In such a situation, with traveling for leisure being an occasional indulgence in most of our lives, there are risks that the pent-up demand might not be enough to sustain the momentum that is propelling the growth performance of DAL and other airlines, which are primarily in the business of ferrying passengers.

As far as the largest cash sales days are concerned, we can be certain that inflation would ensure that cash days in the future would still be larger.
Moreover, with ticket prices at all-time highs and JP Morgan and a few others predicting that the stash of pandemic stimulus cash, fueling the leisure travel boom, could run out over the next quarter, it is unsurprising to find tricks and trends, such as ‘skiplagging’ and consumers trading down on travel being on the rise.

Bottom Line

While DAL and its peers would want nothing more than for passenger demand to stay strong and, perhaps, keep growing, the most likely case would be a return to seasonality and cyclicality, as is typical of the airline industry.
However, the possibility of passenger demand falling off a cliff and investors rushing for the exits only to find that the clock struck midnight and the chariot turned back to a pumpkin can’t be completely ruled out.
Either way, every flight that takes off has to land at some point. The only problem is that nobody knows exactly when.