Is Investing in Airline Stocks a Good Idea for November 2023? - Kalkine Media

November 06, 2023 02:38 AM EST | By Team Kalkine Media
Follow us on Google News:

The airline industry faced unprecedented challenges during the pandemic, with airline stocks experiencing significant declines. Investors have been eagerly awaiting a post-pandemic rally as airlines resumed operations and travelers began flying again. However, despite strong financial results and surging demand for air travel, airline stocks have not shown substantial performance gains. This article explores the factors contributing to the airline industry's mixed performance and whether airline stocks are a wise investment choice in November. 

Strong Demand vs. Stagnant Stock Performance: 

The resilience of the airline industry is evident in the robust financial results of top Canadian airliner Air Canada and U.S. carrier Delta Airlines. Both companies have reported impressive revenue growth in the first nine months of 2023. Air Canada's revenue surged by 40% to reach $16.6 billion, while Delta Airlines witnessed an 18% increase in revenue, totaling $43.8 billion. Despite this record demand for air travel, airline stocks have remained stagnant, trading near their lows. 

Soaring Costs Impacting Airlines: 

The resurgence of inflation has been a notable concern in 2023, impacting various industries and individual consumers. Rising costs, including fuel, labor, and interest rates, have affected the airline industry profoundly. Notably, jet fuel, closely tied to oil prices, has surged in price. TSX AC reported that jet fuel expenses in the first nine months of 2023 were 44% higher than in 2019, totaling 109.6 cents per liter. Furthermore, the cost per available seat mile (CASM) for Air Canada reached 12.2 cents, marking a 12% increase compared to 2019. The upward pressure on wages, salaries, and benefits also soared by 22% in the first nine months of 2023, compared to the previous year. 

Wage Increases and Impact on Costs: 

The trend of increasing wages and benefits, especially among airline employees, poses a significant challenge. For example, Air Canada's competitor and second-largest carrier, WestJet, secured a substantial 24% pay raise for its pilots over the next four years, amounting to an estimated $400 million in additional compensation. Air Canada pilots are now eyeing similar deals, which will exert additional upward pressure on operating costs. 

Higher Interest Rates and Air Travel Demand: 

Interest rates have experienced a notable increase over the past two years, leading to financial strain for many consumers. The higher interest rates have resulted in significantly increased mortgage payments, car payments, and general loan repayments. This added financial burden is expected to impact air travel demand, as consumers' budgets become stretched. Whether interest rates stabilize or decrease slightly, it is likely that this financial pressure will impede the upside potential for airline stocks. 

Conclusion: 

While there is strong demand for air travel and impressive revenue growth for major airliners, the airline industry faces formidable challenges, primarily due to soaring costs and rising interest rates. These factors have weighed on the performance of airline stocks and may continue to do so in the near future. As investors evaluate the prospects of airline stocks in November, they should consider these complexities and challenges in the airline industry 


Disclaimer

The content, including but not limited to any articles, news, quotes, information, data, text, reports, ratings, opinions, images, photos, graphics, graphs, charts, animations and video (Content) is a service of Kalkine Media Incorporated (Kalkine Media), Business Number: 720744275BC0001 and is available for personal and non-commercial use only. The advice given by Kalkine Media through its Content is general information only and it does not take into account the user’s personal investment objectives, financial situation and specific needs. Users should make their own enquiries about any investment and Kalkine Media strongly suggests the users to seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice), as necessary. Kalkine Media is not registered as an investment adviser in Canada under either the provincial or territorial Securities Acts. Some of the Content on this website may be sponsored/non-sponsored, as applicable, however, on the date of publication of any such Content, none of the employees and/or associates of Kalkine Media hold positions in any of the stocks covered by Kalkine Media through its Content. Kalkine Media hereby disclaims any and all the liabilities to any user for any direct, indirect, implied, punitive, special, incidental or other consequential damages arising from any use of the Content on this website, which is provided without warranties. The views expressed in the Content by the guests, if any, are their own and do not necessarily represent the views or opinions of Kalkine Media. Some of the images/music that may be used in the Content are copyright to their respective owner(s). Kalkine Media does not claim ownership of any of the pictures displayed/music used in the Content unless stated otherwise. The images/music that may be used in the Content are taken from various sources on the internet, including paid subscriptions or are believed to be in public domain. We have used reasonable efforts to accredit the source wherever it was indicated or was found to be necessary.



Top TSX Listed Companies

We use cookies to ensure that we give you the best experience on our website. If you continue to use this site we will assume that you are happy with it. OK