Analysis of the Future of American Airlines
Managers of Delta Airlines (DAL), American Airlines (AAL), United Airlines (UAL) and Southwest Airlines (LUV), longtime airline industry giants, are preparing to experience some mergers to consolidate costs as the pains from the depths of the pandemic grow longer. At any point in 2021, we may come across with different scenarios.
“We are waiting for the mergers to happen.”
Helane Becker of Cowen, veteran airline industry analyst, told the following to Yahoo Finance Live, “You can see a merger where United Airlines bought JetBlue (JBLU), United returns to JFK airport after a few years, and JetBlue has a huge presence there.”
Having market ratings of both United and JetBlue, Becker continued, “You can also see the merging of Allegiant, Frontier, and Spirit Airlines. The total of these three airlines account for only 3 percent of the market share. But the probable reason for this is domestic only. They can be a great competitor to the four giant airlines mentioned, because they are very low cost, casual and always ready for flight.”
Becker rates Allegiant (ALGT) and Spirit (SAVE) as unusual in her Market performance.
The experienced analyst said that depressed stock prices made it problematic to conclude a major airline deal. In other words, the pandemic stopped air travel, and therefore cash flow in the airline industry, causing a frenetic drop in stock prices. And this is not an attractive situation when trying to fund a deal.
According to Yahoo Finance Premium data, the shares of 4 giant airline companies dropped an average of 36 percent compared to last year.
What’s more, most airlines don’t have cash on their balance sheets to make a flashy deal. Cash is mainly used to finance losses caused by a possible fall in demand and high structural costs (see aircraft maintenance, unionized employees, etc.)
But from Becker’s point of view, some airline managers with stronger balance sheets and stomachs stronger than steel may have no choice but to attack.
An American Airlines Boeing 737 Max jet plane is parked at a maintenance facility in Tulsa, Okla., Wednesday, Dec. 2, 2020. American Airlines took its long-grounded Boeing 737 Max jets out of storage, updating key flight-control software, and flying the planes in preparation for the first flights with paying passengers later this month.
Any airline can distribute costs better as it grows. It will also position itself as a market share consolidator in the post-pandemic recovery. Although global distribution of vaccines has begun, the outlook for airlines remains dire this year.
The International Air Transport Association (IATA) said in a statement last November that the airline industry will lose about $ 157 billion in total in 2020 and 2021. IATA’s initial estimate was about $ 100 billion in losses for a two-year period. However, the extremely impressive first guess seems like a protective reading. Since that prediction, the pandemic has swept the world by increasing the pace, causing new curfews, increased infections and deaths.
Concerns about the mutation state of the coronavirus brought fears about travel demand.
According to TSA (Transport Security Administration) data quoted by Becker, December passenger demand is 62.4 percent lower than the previous year.
“We don’t think any of the major airlines in the US are in danger of bankruptcy at this point,” adds Becker.
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