Boeing troubles threaten to worsen airlines’ bear market blues
U.S. airline stocks are heading for the worst losing streak since October as volatile fuel prices and the mounting troubles at Boeing Co. tear through the industry, spurring concerns about aircraft delivery delays.
A benchmark of the sector has tumbled more than 5% over a two-week period, the biggest drop for the group in four months. Glum outlook from Southwest Airlines Co. sent shares spiraling roughly 18% this week, the stock’s the poorest showing in almost four years. That performance is weighing on the gauge of carriers in the S&P 1500 Composite which has fallen about 21% from July’s 52-week closing high.
Southwest was among a swath of major carriers previewing first quarter results ahead of an industry conference on Tuesday, but commentary surrounding capacity reductions and cost challenges dominated the conversation. Southwest outlined plans to cut routes and pull back on hiring for the year as it guided revenue estimates down for the March quarter. Meanwhile, American Airlines Group Inc. forecast a quarterly loss at the low end of prior guidance on expectations for pricier fuel.
“What we heard from Southwest was leisure is weak in the first quarter,” said Bloomberg Intelligence analyst George Ferguson, who adds that “too much” is being made of Boeing’s troubles. “Frontier, Spirit and JetBlue are all down, not as much as Southwest, and they are all Airbus operators and should pick up for what Boeing operators lost.”
The capacity cuts are adding more pressure to an industry that is already greatly exposed to the risks of higher fuel costs and a potential slowdown in consumer spending.
With Boeing delivering fewer planes, airlines will have to cut back on the number of routes they fly. Meanwhile, normalizing demand after a surge in lockdown-driven “revenge” travel makes it difficult for these companies to continue hiking fares to cover the increased costs. U.S. inflation data released earlier this week showed airfares rose 3.6% in February from the prior month, the biggest increase since May 2022.
The carriers’ downbeat outlook highlights how the crisis at Boeing is spreading through the broader aviation industry. The planemaker has been mandated by regulators to cap output of its popular 737 Max model as federal scrutiny mounts. Boeing shares have plunged about 29% this year, making the stock the worst performer with the S&P 500’s industrials sector.
The chorus of dour guidance is a stark departure from the fourth quarter, when companies like JetBlue Airways Corp. and Southwest cited strong holiday travel for their outlook boosts. The plans to cut down on flights and hiring, threatens to disrupt the upcoming summer travel season.
Still Wall Street had some positive takeaways from this week’s industry event: that premium flyers are still willing to spend on travel, and a widespread push for workers to return to offices bodes well for corporate demand.
“Near-term messaging from the management teams was encouraging while the stock performance was not,” wrote Daniel McKenzie, a Seaport analyst. “The stocks require patience as management teams execute on financial goals, but we believe the payoffs remain compelling.”