For Airlines, The Party Is Over

Summary

  • U.S. legacy carriers have some unwanted exposure to attacks and European economic concerns.
  • U.K. airlines lost a third of their value post-Brexit vote.
  • I have a preference for U.S. domestic carriers.

With June coming to an end, one thing that can be concluded is that it has been an extremely bad month for airline stocks. In fact, the entire year seems to be a bloody one for airline stocks and its investors.

Earlier in 2016 US airlines were reporting record profits, after saw their share prices rising sharply in 2013 and 2014. In 2015 shares of the big airlines were almost flat, partly a healthy break in the run up but also caused by increased worries about the robustness of economic growth and terrorist attacks.

On the European mainland the playfield is a competitive one. Gulf carriers are cornering the European legacy carriers, while competition from low-cost carriers is fierce. Additionally, strikes among airline staff as well as air traffic controllers has cost the European airlines billions in revenue and profits.

Strikes

While European airlines are having a hard time to remain competitive, their financial results are overshadowed by resistance against restructuring, which often leads to strikes. The ultimate impacts are the loss in revenue due to canceled flights, lower consumer confidence in an airline and slowdown in cost restructuring leaving the airline in cost inefficient position. A good example is Air France-KLM (OTCPK:AFRAF), where Air France pilots are resisting against any form of restructuring. I wrote an article about it:"Air France-KLM: An Unhappy Marriage".

Terrorist attacks

With the impact of Brexit fresh on our memory, a second disruptive event has occurred. At Istanbul Atatürk Airport a bombing attack has taken place, marking the 18 th attack in Turkey this year and the fourth attack after the dramas in Paris (2) and Brussels. The attack follows shortly after the Orlando shooting and Shanghai bombing in June.

The attack in Brussels had little to no impact on airlines share prices. The attacks in

This article was written by

Dhierin Bechai profile picture
14.32K Followers
In-depth insights from an expert on the aerospace and airline industries
Dhierin is a leading contributor covering the aerospace industry on Seeking Alpha and the founder of The Aerospace Forum. With his Aerospace Engineering background he has a more indepth knowledge about aerospace products enabling him to cover a complex niche. Most of his reports will be about companies in the aerospace industry or airlines industry, comparing products and looking at market forecasts providing investors with unique and thorough insights. Dhierin has accumulated nearly 20 million views never failing to spark healthy and thoughtful discussions for investors and aerospace professionals.

His reports have been cited by CNBC, the Puget Sound Business Journal, the Wichita Business Journal and National Public Radio. His expertise is also leveraged in Luchtvaartnieuws Magazine, the biggest aviation magazine in the Benelux.

AeroAnalysis offers wide variety of services, ranging from providing data and cost models to consultancy possibilities. Check out our website for more information. Though we believe in the strong nature of our analysis, we are in no way giving buy or sell recommendations and advise everyone to do their own due diligence before making investment decisions.

Disclosure: I am/we are long DAL, AFRAF, JBLU. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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