U.S. airline bookings slipped 2.3% month-over-month in May, marking the second consecutive monthly drop this year amid surging fares. On the other hand, 1,200 U.S. flights were canceled over the weekend due to lingering operational issues. Analysts believe the delays and cancellations might even worsen.
Despite relaxation in restrictions and red-hot summer travel demand, airline stocks have been under pressure as investors weigh the increasing odds of a recession and how aggressive the Federal Reserve will get to combat the rising inflation.
Given the near-term uncertainties, fundamentally weak airlines stocks Virgin Galactic Holdings, Inc. (SPCE), Frontier Group Holdings, Inc. (ULCC), Air Canada (ACDVF), and Spirit Airlines, Inc. (SAVE) could be best avoided now.
Virgin Galactic Holdings, Inc. (SPCE)
SPCE develops, manufactures, and operates spaceships and related technologies for conducting commercial human spaceflight and flying commercial research and development payloads into space. It is also involved in ground and flight testing and post-flight maintenance of its spaceflight system vehicles.
On May 6, 2022, Canaccord downgraded SPCE, citing logistic disruptions. Moreover, Truist also downgraded the stock, apprehending delayed resumption in space flight operations.
SPCE’s operating loss came in at $91.39 million for the first quarter ended March 31, 2022, compared to a loss of $81.28 million in the year-ago period. Its cash and cash equivalents came in at $601.46 million, down 2.5% year-over-year. Also, its adjusted EBITDA came in at a negative $76.81 million compared with a negative $55.95 million.
SPCE’s revenue is expected to decrease 49.9% year-over-year to $1.65 million in 2022, while its EPS is expected to fall 2.8% year-over-year to negative $1.47. Moreover, its EPS is expected to remain negative in 2022 and 2023. The company missed EPS estimates in three of the trailing four quarters. Over the past year, the stock has slumped 83% to close the last trading session at $6.25.
SPCE’s POWR Ratings reflect its poor prospects. It has an overall grade of F, which indicates a Strong Sell. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Also, the stock has an F grade for Stability and Sentiment and a D for Value and Quality. Click here to access the additional POWR Ratings for SPCE (Growth and Momentum). SPCE is ranked last in the F-rated Airlines industry.
Frontier Group Holdings, Inc. (ULCC)
The low-fare airline company, ULCC, provides air transportation for passengers. The company operates an airline that serves approximately 120 airports throughout the United States and international destinations in the Americas.
ULCC’s total operating revenues came in at $605 million for the first quarter ended March 31, 2022, up 123.2% year-over-year. However, its net loss increased 33% year-over-year to $121 million, while its loss per share increased 21.7% year-over-year to $0.56. In addition, its EBITDA came in at a negative $140 million, compared to a negative $84 million in the prior-year quarter.
The stock has declined 31.2% year-to-date to close the last trading session at $9.34.
ULCC has an overall D grade, equating to Sell in our POWR Ratings system. Also, it has a D grade for Growth, Value, Momentum, Stability, and Sentiment.
Click here to access the ULCC rating for Quality. It is ranked #28 out of 30 stocks in the Airlines industry.
Air Canada (ACDVF)
Based in Saint-Laurent, Canada, ACDVF provides domestic, U.S. transborder, and international airline services. The company operates a fleet of 175 aircraft under the Air Canada mainline brand name.
On June 20, 2022, ACDVF announced the expansion of its international network with the addition of Bangkok and Thailand. It also announced the restoration of routes to India, Australia, New Zealand, and Peru. However, given that government approval remains pending, operations might take time to resume.
For the first quarter ended March 31, 2022, ACDVF’s total revenues came in at C$2.57 billion ($1.99 billion), up 252.9% year-over-year. However, its total comprehensive loss came in at C$1.17 billion ($907.02 million), compared to a loss of C$887 million ($687.04 million) in the prior-year period.
The company’s cash and cash equivalents came in at C$3.15 billion ($2.44 billion), down 4% year-over-year. Also, its interest income decreased marginally to C$20 million ($15.49 million).
ACDVF’s EPS is expected to remain negative in 2022. The stock has lost 40.7% over the past year to close the last trading session at $13.26.
ACDVF’s POWR Ratings are consistent with this bleak outlook. The stock has an overall D rating, equating to a Sell in our proprietary rating system. In addition, the stock has a D grade for Value and Momentum.
We also have graded ACDVF for Growth, Stability, Sentiment, and Quality. Click here to access all of ACDVF’s ratings. It is ranked #24 in the Airlines industry.
Spirit Airlines, Inc. (SAVE)
SAVE provides airline services. It serves 85 destinations in 16 countries in the United States, Latin America, and the Caribbean. Currently, the company has a fleet of around 173 Airbus single-aisle aircraft.
SAVE’s total operating revenues came in at $967.32 million for the first quarter ended March 31, 2022, up 109.7% year-over-year. However, its operating loss came in at $211.47 million, compared to a loss of $102.53 million in the previous period. Furthermore, its net loss increased 73.3% year-over-year to $194.70 million, while its loss per share increased 55.7% from the year-ago value to $1.79.
SAVE’s EPS is estimated to remain negative in 2022. Its EPS is expected to decline 48.8% per annum for the next five years. The stock has lost 35.8% over the past year to close the last trading session at $21.28.
SAVE has an overall grade of D, translating to Sell in our proprietary rating system. Also, the stock has a D grade for Momentum, Stability, and Sentiment.
Click here to access the additional POWR Ratings for SAVE (Growth, Value, and Quality). It is ranked #26 in the same industry.
SPCE shares were trading at $6.12 per share on Tuesday afternoon, down $0.13 (-2.08%). Year-to-date, SPCE has declined -54.26%, versus a -20.73% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.
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