Airline stocks come down to earth as earnings outlook darkens

Summer’s ending with a thud for US airline stocks, as a litany of problems from rising oil costs to flagging domestic-travel demand threaten earnings. The 10-member S&P Supercomposite Airlines Index fell 9.5% in August, for its worst monthly decline since December. The slump coincides with a souring mood on Wall Street toward the sector: Analysts have cut their earnings-per-share estimates for 2023 by an average of about 15% in the past month for the index members, according to data compiled by Bloomberg. The index is well off its year-to-date peak after surging almost 29% through July, with fewer potential positive catalysts between now and the year-end holiday season. “With the airlines, particularly in the domestic market, we are well past the peak,” said Conor Cunningham, an analyst at Melius Research. “You look out to 2024 and the pricing environment’s worse and now you have fuel higher.” This week, Cunningham reduced 2024 targets for every US airline he covers — outside of Hawaiian Holdings Inc. — as costlier fuel compounds the hit from lower fares. Earlier in the month, Goldman Sachs Group Inc.’s Catherine O’Brien lowered price targets across her airlines coverage, citing higher jet fuel prices as one factor. Many of the smaller carriers such as Spirit Airlines and Alaska Air Group suffered from a shift in demand to international destinations at the expense of US cities. That was good news for legacy carriers Delta and United, which have robust overseas routes and capacity that is tracking higher, according to Evercore. The firm estimates that international capacity for the third quarter is up 20%, with domestic capacity up 10%.<br/>