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Airline : Running For Exit

(Tue, 21 July 2020). Millennial traders fell in love with airline stocks in May and June. Suddenly, they`re having second thoughts - and racing for the exits. Just a month after mashing the buy button on Delta and American, traders can`t dump carrier stocks fast enough.

Last month, Robinhood users bought airline stocks aggressively. Just weeks later, they’re fleeing the embattled sector – and often incurring heavy losses. Six U.S. airlines are expected to report ugly second-quarter earnings this week. Millennials have fallen out of love with airline stocks. After retail investors piled into the sector in late May and early June, the tide suddenly turned. Share prices are falling, and Robinhood traders are rapidly jumping ship.

This reversal follows a resurgence of the pandemic in the U.S., and it precedes a slew of earnings reports from domestic carriers. Neither promises airline stock investors positive news.

The growing number of cases has raised the prospect of further curbs on air travel. And the quarterly results are expected to expose staggering losses.

 

ROBINHOOD TRADERS FALL IN AND OUT OF LOVE WITH AIRLINE STOCKS

Airline stocks took a brutal plunge in March. By mid-May, it looked like the worst was over for the sector. The JETS ETF – an index fund that tracks the air travel industry – started to rally. It was up nearly 90% off its lows by early June. As airline stocks staged a recovery, Robinhood’s army of millennial investors started piling in. (The platform’s median user is 31.)

In June, American Airlines (NASDAQ: AAL) and Delta Air Lines (NYSE: DAL) both ranked among Robinhood’s ten most popular stocks. Delta – the fifth-most popular stock – added over 50,000 users in 30 days. American, which ranked third, recorded a nearly 20% increase in the number of Robinhood traders holding AAL shares. Then the pandemic returned with a vengeance. As case rates surge across the U.S. and travel curbs rise, the outlook for air travel is darkening again. The JETS ETF has already shed 25% of its value.

 

ROBINHOOD TRADERS HURRIEDLY EXIT AIRLINE STOCKS

It’s abundantly clear that Robinhood users were chasing the rally in airline stocks – not making a high-conviction bet on the sector’s long-term recovery. Just a month after mashing the buy button on Delta and American, traders can’t dump carrier stocks fast enough. Of the top 50 stocks with the largest number of “investor exits” during the past 30 days, four belong to airlines. Nearly 20,000 investors dumped all their Spirit Airlines shares (NYSE: SAVE), trailing only Seanergy and MFA Financial.

United Airlines (NASDAQ: UAL) registered the sixth biggest decrease, while Delta ranked ninth. Southwest Airlines (NYSE: LUV) snuck into the top 50 in the 49th spot. It’s likely this trend will accelerate before it reverses. Several major carriers report earnings this week, and analysts expect their quarterly losses to run into the billions of dollars.

 

BILLION-DOLLAR TURBULENCE HITS CARRIERS

The three most prominent reports come will come from United, American, and Southwest. Analysts aren’t optimistic about their earnings per share (EPS) results. Here are the consensus estimates:

United Airlines: negative $9:02 (July 21: post-market)
American Airlines: negative $7.56 (July 23: pre-market)
Southwest Airlines: negative $2.66 (July 23: pre-market)

Delta already released its results, and they weren’t pretty. The company lost close to $6 billion during the second quarter alone. That should concern investors who own other stocks in the sector, especially since Delta boasts a stronger cash position than either American or United.

Other carriers that will report this week include JetBlue Airways (NASDAQ: JBLU), Spirit, and Alaska Air Group (NYSE: ALK). There’s no reason to expect that any of these earnings presentations will do anything but intensify the airline stock exodus. Robinhood traders who failed to take profits when the going was good will see red – and not just figuratively.

 

 

 

 


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