Do Not Buy These Stocks. Commercial Airlines Have Been Destroying Portfolio.
Air traffic’s up. Airfare’s up. Permissible luggage weight is down. Yet 2024 isn’t off to a banner start for the major airlines.
Earlier this month, a Boeing (BA) 737 Max 9 suffered a blowout, the scenes of which appeared to be out of a film like Final Destination.
Federal officials have since ordered the grounding of 171 of those airliners. Then weeks later, another Boeing 737 forced a flight to return after a crack developed in the cockpit window.
The company’s stock’s plummeted -22% over the past month.
But the industry’s issues aren’t confined to Boeing. The present state of airlines is disastrous, and you should avoid these stocks like gas station sushi.
A Veritable Bus in the Sky
During the golden age of flying, travel was a luxury. People would put on their Sunday best, eat multi-course meals and enjoy live piano music.
Fast forward to 2024 and flying’s been relegated to the equivalent of city bus travel at an altitude of 30,000 feet.
The indications of this degradation have been there for years, but we mostly ignored them as the alternative was driving 1,000 miles to Florida to visit our grandparents:
- Charging for everything from water and stale pretzels to pillows, earbuds and in-flight entertainment.
- Phasing out reclining seats and dramatically reducing legroom.
- Instituting draconian restrictions on luggage weight and dimensions.
- And packing so many humans into a fuselage, we resemble canned sardines.
And unless you have access to an equally extravagant and tasteless private jet like our walking hairpiece of a 45th president, we’re typically resigned to flying under those aforementioned conditions.
That’s especially true with budget carriers like Spirit (SAVE), whose ticker symbol alludes to its commitment to transporting you from Point A to Point B perhaps before tomorrow, dehydrated, with cramping legs and a viral video of some passenger in their underwear attacking a flight attendant … for as low of a price as fiscally possible.
It Gets Worse …
You’d think these cost-cutting measures along with oil prices that are $125/barrel cheaper than in 2008 and the $25 billion airlines received in bailouts in 2020 would be fattening shareholder returns.
Right? Wrong.
Warren Buffet’s Berkshire Hathaway loaded up on airline stocks in 2016 before famously selling them early in the pandemic for enormous losses. Since then, the major carriers’ stocks have continued experiencing nausea-inducing drop-offs over the past five years:
Even when these companies perform well, their stocks still find a way to hurt investors. Look no further than Delta (DAL), the bellwether of airline earnings.
When Delta kicked off Q4 2023 earnings season on Jan. 12, the Atlanta-based carrier reported better-than-expected revenues and earnings per share driven by robust holiday travel. However, the stock lost -10.66% over the past month.
The company’s culprit? Pilots.
Delta blames higher labor costs after the pilots’ union successfully negotiated higher salaries for aviators at major airlines last year. Corporations love to blame employees’ wages for their economic “hardships.” It’s as American as apple pie and the assistance programs upon which workers at $434-billion market cap companies like Walmart rely.
But the fact is there’s a multitude of contributing factors to blame for these airlines’ struggles, of which labor costs is just one. Take, for example:
- Delta’s 24% YoY decline in cargo revenue, which evidently didn’t grab headlines like pointing the finger at pilots getting long overdue raises.
- Or the company’s YoY increase of $500 million in sales and marketing expenses.
- Or the company’s -16% change in free cash flow, which fell from $3.2 billion in 2022 to $2.74 billion last year.
You get the picture. But yes, it’s the pilots fault.
After all, when they’re not using their thousands of hours of experience to safely transport Americans around the globe … they’re secretly orchestrating branding campaigns for marketing departments and cooking the books for finance departments.
We can’t even make an adequate argument for these stocks on the basis of their dividends, which yield 1.08% for Delta, 1.45% for American Airlines (AA) and 2.54% for Southwest (LUV).
United (UAL) and JetBlue (JBLU) don’t pay dividends, and despite Spirit’s considerable 7.79% monthly yield, the stock’s down nearly -90% over the past five years. So a $1,000 investment in 2019 is now worth $220 before dividends.
Uninspiring. Right now, your hard-earned money would be better off in a high-yield savings account than in any of these stocks.
TL;DR
No matter who airline executives blame for their own failures, these stocks’ atrocious performances over the past five years can’t be pinned on pilots’ raises in 2023. Avoid shares of airline companies at all costs until evidence of a true reversal is established.