Airline stocks have lost significant ground since the beginning of the year as investors have reduced their exposure to sectors with limited near-term prospects due to the persistent economic headwinds and a potential recession. Despite recovering travel demand, high inflation, surging fuel costs, and staffing issues have weighed heavily on the industry.
The Russia-Ukraine conflict and the corresponding spike in oil prices have affected the industry since fuel accounts for at least 30% of an airline’s total costs. The aviation fuel cost per gallon had hit its all-time high, reflecting a 96% year-over-year cost per gallon increase. Higher costs have put pressure on the bottom line of most airline service providers this year.
Christopher Raite, a senior analyst at Third Bridge, said, "Demand for seats on planes is increasing, but supply is constrained, leading to higher ticket prices for consumers."
Moreover, concerns over a potential economic slowdown could cause people to postpone their travel plans, putting pressure on demand. Analysts at Morning Consult stated, "services like air travel ... registered modest spending declines as robust demand faltered slightly amid eye-popping prices."
Given this backdrop, we believe investors are better off avoiding airline stocks Astra Space, Inc. (ASTR), Virgin Galactic Holdings, Inc. (SPCE), and Frontier Group Holdings, Inc. (ULCC), which have slumped in price over the past year and could continue to decline due to their poor fundamentals and growth prospects.
Astra Space, Inc. (ASTR)
ASTR operates as a space launch company and provides satellite launch services. It is also engaged in designing and testing propulsion modules that enable satellites to orbit in space.
In the fiscal first quarter ended March 31, 2022, ASTR’s operating loss widened 250% year-over-year to $86.28 million. ASTR’s adjusted net loss amounted to $50.15 million, up 237.5% year-over-year, while its adjusted EBITDA loss increased 253.4% year-over-year to $47.48 million.
The company’s net loss per share amounted to $0.33, representing a decline of 98.2% year-over-year.
Analysts expect ASTR's earnings per share for fiscal 2022 (ending December 2022) to remain negative. The stock has declined 78.5% year-to-date to close the last trading session at $1.49.
ASTR's POWR Ratings reflect this bleak outlook. The stock has an overall rating of F, which translates to a Strong Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an F grade for Stability and Quality and a D for Growth and Value. It is ranked #30 of 31 stocks in the F-rated Airlines industry. Click here to see ASTR's POWR Ratings for Momentum and Sentiment.
Virgin Galactic Holdings, Inc. (SPCE)
SPCE is an integrated aerospace company that develops human spaceflight for private individuals and researchers in the United States. It also manufactures air and space vehicles. In addition, it designs, develops, manufactures spacecraft, and engages in ground and flight testing and post-flight maintenance of spaceflight vehicles.
SPCE's operating loss widened 12.4% year-over-year to $91.39 million in the first quarter ended March 31, 2022. Its net loss narrowed by 28.2% from the year-ago value to $93.06 million.
The company’s net loss per share amounted to $0.36, narrowing 34.5% from the same quarter last year. Its adjusted EBITDA loss increased 37.3% year-over-year to $76.81 million.
Street expects SPCE's loss per share to amount to $0.38 for the third quarter (ending September 2022), representing an increase of 100% from the prior-year period.
Shares of SPCE have declined 42.1% year-to-date to close the last trading session at $7.74.
SPCE's POWR Ratings reflect its poor prospects. The company has an overall F rating, equating to a Strong Sell in our proprietary rating system.
It has an F grade for Stability and Sentiment and a D for Value and Quality. It is ranked last within the same industry. Click here to see additional POWR Ratings (Growth and Momentum) for SPCE.
Frontier Group Holdings, Inc. (ULCC)
ULCC is a low-fare airline company that offers air transportation for passengers. The company operates an airline that serves approximately 120 airports throughout the United States and international destinations in the Americas. It has a fleet of roughly 110 Airbus single-aisle aircraft.
For its fiscal first quarter ended March 31, 2022, ULCC’s total operating expenses increased 108.8% year-over-year to $758 million. Its non-GAAP net loss narrowed 37% from the year-ago period to $109 million.
Also, its operating loss widened 66.3% from the prior-year period to $153 million. The company’s loss per share came in at $0.56, widening 21.7% from the prior-year period.
Street expects the company’s EPS estimate to remain negative for fiscal 2022. It has missed the consensus EPS estimate in three of the trailing four quarters. The stock has slumped 17.1% year-to-date to close the last trading session at $11.25.
ULCC’s POWR Ratings are consistent with this bleak outlook. It has an overall D rating, equating to Sell in our proprietary rating system. The stock has an F grade for Sentiment and a D for Value and Stability.
Again, in the Airlines industry, it is ranked #29. Click here to see ULCC’s POWR Ratings for Growth, Momentum, and Quality.
ASTR shares rose $0.03 (+2.01%) in premarket trading Friday. Year-to-date, ASTR has declined -78.07%, versus a -15.52% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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