Despite witnessing a limited recovery in the first half of the year, the resurgence of COVID-19 cases, followed by stricter travel restrictions, have stymied new bookings and increased cancellations of existing bookings. Although the industry is again seeing an uptick in passenger traffic with the easing of travel restrictions in various countries, analysts expect rising fuel costs and pressure on fares to result in bottom-line stress in the fourth quarter and beyond for most airlines. 

Although major airline operators should stay afloat owing to their efforts in switching to sustainable jet fuel, some could struggle. 

Thus, fundamentally weak airline stocks Delta Air Lines, Inc. (DAL), American Airlines Group Inc. (AAL), JetBlue Airways Corporation (JBLU), Allegiant Travel Company (ALGT), and Hawaiian Holdings, Inc. (HA) have lately been downgraded by analysts, and we think these stocks are best avoided for now.

Delta Air Lines, Inc. (DAL)

DAL in Atlanta, Ga., provides scheduled air transportation and related services for passengers, freight, and mail over a network of routes worldwide. It also provides aircraft maintenance, repair and overhaul services, and vacation packages to third-party consumers, as well as aircraft charters. The company operates with a fleet of approximately 1,100 aircraft. Wolfe Research recently downgraded DAL’s rating from ‘Outperform to ‘Peer Perform.’ The stock has a 1.35 beta.

On August 11, 2021, DAL launched a new Air+Rail program in partnership with Thalys, a French-Belgian high-speed train operator, to provide fast rail connections between Amsterdam and the Belgian cities of Brussels and Antwerp. The program lets customers seamlessly transfer between plane and train at Amsterdam’s Schiphol airport with one-ticket booking. Offering power outlets at each seat and Wi-Fi on every Thalys’ train, the companies expect to provide a better customer experience and convenient train service across European destinations with the program.

For its fiscal second quarter, ended June 30, 2021, DAL’s non-GAAP net loss was $678 million, representing a 75.9% year-over-year decline. Its non-GAAP loss per share decreased 75.8% year-over-year to $1.07. As of June 30, 2021, the company had $10.36 million in cash and cash equivalents, down 8.9% from the prior-year period.

Analysts expect DAL’s EPS to remain negative in the current year. The stock missed consensus EPS estimates in three of the trailing four quarters. DAL’s EPS is expected to decline at a 23.7% rate per annum over the next five years. Over the past six months, the stock has declined 12.3% in price and closed the last trading session at $43.19.

DAL’s weak prospects are reflected in its POWR Ratings. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

DAL has a D grade for Stability and Sentiment. In the 31-stock, F-rated Airlines industry, it is ranked #14. To see additional POWR Ratings for DAL’s Value, Quality, Growth, and Momentum, click here.

American Airlines Group Inc. (AAL)

AAL provides scheduled air transportation services for passengers, cargo, and mail service through its hubs and partner gateways worldwide. As of December 31, 2020, the Fort Worth, Tex., company  operated a mainline fleet of 855 aircraft. AAL’s rating has also been downgraded from ‘Neutral’ to ‘Sell’ by Goldman Sachs. The stock has a 1.71 beta.

On September 28, 2021, AAL and IndiGo, an Indian airline, announced a new codeshare agreement, providing an easy option for AAL customers to travel to India. The deal will place AAL’s code on 29 of IndiGo’s domestic routes in India. Expected to begin in October, AAL expects to see advanced bookings this fall.

AAL’s total operating expenses for its fiscal second quarter ended June 30, 2021, increased 71.3% year-over-year to $7.04 billion. As of June 30, 2021, the company had $465 million in cash and restricted cash, representing a marginal decline from the prior-year period.

AAL’s EPS is expected to remain negative in the coming quarters of the current year. Its EPS is expected to decline at a 124.2% rate per annum over the next five years. AAL has declined 14.5% in price over the past six months and closed the last trading session at $20.13. 

AAL’s POWR Ratings are consistent with this bleak outlook. AAL has an F grade for Sentiment, and a D grade for Stability. Moreover, it is ranked #19 of 31 stocks in the F-rated Airlines industry.

In addition to the POWR Rating grades I’ve highlighted, one can see AAL’s ratings for Value, Quality, Growth, and Momentum here.

JetBlue Airways Corporation (JBLU)

JBLU provides air passenger transportation services worldwide. It operates various kinds of aircraft, including Airbus A321, Airbus A320, and Embraer E190. The Long Island City, N.Y.-based carrier also provides a premium transcontinental product called Mint. Goldman Sachs has recently downgraded JBLU’s rating from ‘Buy’ to ‘Neutral.’ It has a 1.57 beta.

On September 30, 2021, JBLU expanded its presence in the transatlantic market with a new, nonstop service between New York’s John F. Kennedy International Airport (JFK) and London Gatwick Airport (LGW). Because travel restrictions to U.S. entry are being eased for travelers from the U.K. and other European destinations, JBLU expects to witness good sales in the coming months.

For its fiscal second quarter, ended June 30, 2021, JBLU’s total operating expenses increased 116.3% year-over-year to $1.35 billion. The company had $2.41 billion in cash and cash equivalents as of June 30, 2021, indicating a 5.9% year-over-year decline.

Analysts expect JBLU’s EPS to remain negative in the coming quarters of the current year. JBLU’s EPS is expected to decline at a 126.4% rate per annum over the next five years. Over the past six months, JBLU has declined 26.6% and closed the last trading session at $15.45.

It’s no surprise that JBLU has a D grade for Stability and Sentiment in our POWR Ratings system. The stock is ranked #21 in the F-rated Airlines  industry. Click here to see additional POWR Ratings for JBLU’s Momentum, Value, Quality, and Growth.

Allegiant Travel Company (ALGT)

WISH operates as a mobile e-commerce company internationally. The Las Vegas, Nev.-based concern operates a Wish platform that connects users to merchants. It also provides marketplace and logistics services to merchants. Wolfe Research recently downgraded ALGT’s rating from ‘Outperform’ to ‘Peer perform.’ The stock has a 1.70 beta.

On August 10, 2021, ALGT announced plans to establish two new aircraft and crew bases during the first quarter of 2022 at Flint Bishop International Airport (FNT) and Appleton International Airport (ATW). The new bases are lynchpins of its growth strategy, facilitating additional routes and flight frequencies for travelers across its network.

For its fiscal second quarter, ended June 30, 2021, ALGT’s total operating expenses increased 35.3% year-over-year to $333.58 million. Over the past six months, the stock has declined 24.2% in price to close the last trading session at $191.71.

ALGT’s POWR Ratings reflect this bleak outlook. The stock has a D grade for Stability and Sentiment. Click here to see the additional ratings for ALGT’s Value, Momentum, Growth, and Quality. ALGT is ranked #7 in the F-rated Airlines industry.

Hawaiian Holdings, Inc. (HA)

Through its Hawaiian Airlines, Inc. subsidiary, HA engages in the scheduled air transportation of passengers, cargo, and mail worldwide. The Honolulu, Hawaii-based company offers daily services to North America and to the six major islands of the State of Hawaii. It distributes its tickets through its hawaiianairlines.com website, travel agencies, and wholesale distributors for its international routes. HA’s rating has also been downgraded from ‘Outperform’ to ‘Peer Perform’ by Wolfe Research. The stock has a 2.26 beta.

For its fiscal second quarter, ended June 30, 2021, HA’s adjusted loss before income taxes came in at $93.94 million, down 59.2% from the year-ago period. While HA’s adjusted net loss decreased 57.8% year-over-year to $73.84 million, its adjusted loss per share decreased 62.2% year-over-year to $0.03.

HA’s EPS is expected to remain negative in the coming quarters of the current year. The stock has missed the Street’s EPS estimates in three of the trailing four quarters. Analysts expect the stock’s EPS to decline 40% in the current quarter. Over the past six months, HA has lost 18.4% in price and closed the last trading session at $21.28.

HA’s weak prospects are reflected in its POWR Ratings. The stock has an F grade for Stability and Sentiment. HA is ranked #16 in the F-rated Airlines Industry. Click here to see additional POWR Ratings for HA’s Growth, Value, Quality, and Momentum.

DAL shares rose $0.26 (+0.60%) in premarket trading Tuesday. Year-to-date, DAL has gained 7.41%, versus a 17.40% rise in the benchmark S&P 500 index during the same period.

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.

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