I was on Arise talking about airlines earlier today...
Admittedly it's a sector I'd put to one side and filed under 'pretty screwed, let's see what happens'...
However, the Q2 earning reports prompted me to revisit the sector.
It's been quite the bumpy ride for airlines since the S&P bottomed in March 2020 👇👇👇
Yellow line is the S&P (SPY) and the others are: United (UAL, blue), Delta (DAL, orange) & American (AAL, turqoise).
Looking back, the story is obvious.
Airlines underperformed amidst travel/virus uncertainty throughout most of 2020.
October/November 2020 vaccine trials gave hope, which evolved into optimism and airline stocks really took off.
More recently some of that optimism has faded, as the bumpy reopening and virus variants have taken a toll, particularly the difficulties in reopening international borders.
But United Airline's Q2 performance does offer some hope...
- United lost $3.91 per share beating expectations for $4.01 per-share loss
- Sixth consecutive quarterly loss
- Revenue quadrupled from a year ago at $5.4bn, slightly above estimates
- Quarterly revenue was 50% of the ~$10 billion it booked in the same quarter of 2019
- U.S. leisure travel has nearly recovered to pre-pandemic levels as more people fly for vacation or to visit friends and family following a massive nationwide vaccination campaign
- For Q3 2021, they're forecasting Sales to Flight Capacity will be higher than the same quarter in 2019
- Expected a full recovery in demand by 2023
Stating the obvious, sales to flight capacity is THE key metric.
e.g. EasyJet said it expected to operate 60 per cent of its 2019 schedule between July and September, up from 17 per cent in the previous quarter.
But if they're not filling those planes up, they're still losing money (just not as fast).
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Evergrande Update 👇👇👇
Reuters reported today that HSBC & Standard Chartered have stopped providing mortgages for Evergrande projects in Hong Kong.
The secret's out.
Evergrande's huge debt load is swamping them and the lending has dried up...
Evergrande is already out on the defensive and says it has 'good relationships with many HK banks and is confident it will deliver Emerald Bay II in August'
Revisiting David's notes from August 2019 👇
The next question is whether this will lead to a domino effect in China's property market (and potential social unrest if property prices fall)
This excellent chart via Travis Lundy shows the performance of Sunac (another heavily indebted Chinese developer) & Evergrande vs a basket of peers 👇👇👇
No major signs of contagion yet, but tough to bet against it...
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Chart of the day: Buybacks are BACK!
SPX Company Announced Share Repurchases (buybacks) are running above the 3 year average so far this year.
Q2 earnings reports continue to roll in with plenty of companies announcing share repurchases.
Can they reach the magic trillion by year-end?
Buybacks are bullish... 👇