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How Airline Stocks Have Fared in the First Half of 2019

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Bumpy ride

Airline stocks have had a rough ride in the first half of 2019, and the majority of them have underperformed the broader markets. The U.S. Global Jets ETF (JETS), whose portfolio consists of cargo and passenger airlines, aircraft manufacturers, and airport and terminal services stocks, gained just 8.4% in the first half of 2019. The ETF underperformed major US indexes, including the Dow Jones, the NASDAQ, and the S&P 500, which gained 14%, 20.7%, and 17.3%, respectively, in the same timeframe.

Among the major US air carriers, Spirit Airlines (SAVE) is the worst performer with a 17.6% loss as of the end of June. United Airlines (UAL), American Airlines (AAL), Hawaiian Holdings (HA), and Alaska Air Group (ALK) increased in the low-single-digit range of 4.6%, 1.6%, 3.9%, and 5%, respectively, during the same timeframe. Delta Air Lines (DAL) and Southwest Airlines (LUV) were the few carriers that recorded a double-digit gain in their share prices of 13.7% and 10.1%, respectively.

Why airlines underperformed

Multiple factors were responsible for airline stocks’ dismal performance during the first half of 2019. Rising concerns of a global slowdown and uncertainty over the US-China trade negotiations kept the entire market highly volatile throughout this year.

Moreover, investors turned cautious over airlines’ growth prospects after the majority of them reported sluggish top-line growth in the first quarter of 2019. The carriers faced massive flight cancelations during the quarter due to the partial government shutdown in January, severe winter conditions, and the worldwide ban on Boeing (BA) 737 MAX planes. Airlines stated that the factors mentioned above negatively impacted their overall financial performance in the first quarter.

In a March 27 regulatory filing, Southwest Airlines disclosed over 9,400 flight cancelations in the first quarter due to unfavorable weather, unscheduled maintenance disruptions, and ongoing troubles with MAX jets. American Airlines faced 2,140 flight cancelations due to government shutdown and the grounding of its 24 Boeing 737 MAX planes.

Boeing 737 MAX jets have been banned from flying after two deadly accidents that killed 346 people. Industry experts believe that Boeing would get safety approval for its troubled jets by October and then airlines would be able to resume their MAX services by the end of December.

Southwest, American, and United Airlines together own 72 737 Max aircraft. Southwest Airlines has announced removing all its MAX flights from the flying schedule through October 1. American and United airlines have extended their MAX flight cancelations through August. The longer these planes remain grounded, the more it will hurt airlines.

How analysts view airline stocks

Despite a dismal first-half performance, analysts are still bullish on the airline industry, and they have provided a “buy” recommendation to the majority of stocks in the space. American Airlines and Spirit Airlines are Goldman Sachs’ favorites, while Credit Suisse’s favorite stock list includes Alaska Air Group and Southwest Airlines in addition to Spirit Airlines.

Wall Street’s average target price on American, Spirit, Southwest, and Alaska Airlines suggests a return of 26%, 37.3%, 15.1%, and 16.8%, respectively, over the next year. All the four stocks have received a consensus “buy” recommendation from analysts polled by Reuters.

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