Airline Operations Disrupted Due to Another Nor'easter

Stocks in the airline space have been hit by inclement weather repeatedly this year. Weather-related disruptions cripple airline operations, leading to multiple flights being cancelled. In fact, the current month has reportedly seen more than 10,000 flights being called off due to successive nor’easters. Notably, it is believed to be the worst March in five years in terms of flight cancellations.  

Another Nor'easter Hits: Multiple Flights Cancelled

Foul weather continued to hurt airline operations, throwing travel plans haywire, as the fourth nor’easter hit the Northeast this month. Similar to the earlier storms, the current one (winter storm Toby) too has resulted in heavy snowfall accompanied by strong winds in the region.

Consequently, travel plans were disrupted causing harassments to passengers. The  severity of the storm can be realized from the fact that more than 4000 flights were cancelled in the United States by various carriers on Wednesday. In fact, flight cancellations hit operations severely at major airports like, LaGuardia, JFK and Newark Liberty, in the New York city area.

The Fort Worth, TX-based American Airlines Group Inc. AAL led the list of cancelled flights, calling off 577 flights on Wednesday. Other airline players like United Continental Holdings, Inc. UAL, Southwest Airlines Co. LUV, Delta Air Lines, Inc. DAL, JetBlue Airways Corporation JBLU were not spared of the miseries either and had to cancel multiple flights.

While American Airlines holds a Zacks Rank #2 (Buy), the other carriers mentioned above carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Woes Not Yet Over

What is worse is that the woes are likely to continue, though not as severely as on Wednesday, resulting in more flight cancellations and revenue losses for airline operators. In fact, more than 600 flights into/out of the United States are expected to be cancelled today.

Moreover, gusty wind is expected to blow in the affected areas confining people to their homes and disrupting travel plans. Apart from the damaging winds, severe power outages are anticipated in parts of the Northeast.

To compensate for the harassment of passengers, who had planned to travel in the affected period, most carriers including United Continental, American Airlines, Delta, Spirit Airlines, Inc. SAVE and Alaska Air Group, Inc. ALK are offering travel waivers.

Toby- Related Woes Coincide With Southwest’s Bleak RASM View

Wednesday turned out to be a nightmarish day for airline stocks. This is because, apart from their operations being crippled due to Toby, Southwest Airlines’ disappointing unit revenue forecast for the current-quarter resulted in most sector participants trading in the red.

The Dallas-based carrier now expects revenue per available seat mile (RASM: a key measure of unit revenue) to be comparable with the figure of 13.23 cents achieved a year-ago. The projection compares unfavorably to the previous forecast of year-over-year growth between 1% and 2%. Pricing pressures and weaker-than-expected demand for air travel due to the timing of the spring break holidays contributed to the downbeat forecast.

As a result of the weak RASM guidance, shares of Southwest lost 4.8% of their value, ending the trading session on Mar 21 at $57.78. The losses were not limited to only Southwest as other major carriers too felt the heat and declined. Consequently, the NYSE ARCA Airline index decreased 1.2% on the day to $119.97.

Headwinds to Hurt Q1?

Back-to-back natural calamities had hurt airline operations last year as well. However, the sector bounced back post the calamities. In the last six months, the Zacks Airline industry rallied 14.9%, outperforming the S&P 500’s gain of 8.9%.

Given this backdrop, it remains to be seen whether the successive storms this month and Southwest’s bleak current-quarter unit revenue forecast dampens the sector’s recovery. The headwinds might hurt revenues significantly, thereby adversely affecting the carriers’ first-quarter 2018 results, which should be announced next month.

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