American Airlines Shares Rise Pre-Market as Q4 Loss Narrows

American Airlines shares rose nearly 2% in pre-market trading on Thursday after the company reported a smaller loss in the fourth quarter as a result of strong travel demand.

The airline reported an adjusted net loss of $921 million, or $1.42 per share, compared to a loss of $2.2 billion, or $3.86 per share, a year ago, Reuters reported. That was better than the market expectations of $-1.72 per share. In comparison with a year ago, the company’s total operating revenue was $9.43 billion versus $4.03 billion.

American Airlines said it will continue to match its forward capacity with observed bookings trends. Based on current trends, the company expects its first-quarter capacity to be down approximately 8% to 10% compared to the first quarter of 2019. American expects its first-quarter total revenue to be down approximately 20% to 22% versus the first quarter of 2019, the press release noted.

American Airlines stock rose nearly 2% in pre-market trading on Thursday. The stock slumped nearly 4% so far this year after surging about 14% in 2021.

Analyst Comments

American Airlines reported 4Q21 adjusted loss of $921 MM, slightly above our estimate of a loss of $922 MM. American is seeing improvement in business traffic and expects international traffic to improve as omicron abates,” noted Helane Becker, equity analyst at Cowen.

“We expect these shares are likely to trade up in the morning as the company is focused on returning capacity to pre-pandemic levels and improving the balance sheet.”

American Airlines Stock Price Forecast

Eight analysts who offered stock ratings for American Airlines in the last three months forecast the average price in 12 months of $18.94 with a high forecast of $23.00 and a low forecast of $10.00.

The average price target represents a 9.42% change from the last price of $17.31. From those eight analysts, one rated “Buy”, five rated “Hold” while two rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $21 with a high of $33 under a bull scenario and $10 under the worst-case scenario. The investment bank gave an “Equal-weight” rating on the airline company’s stock.

“We rate American Airlines (AAL) Equal-weight. Following the stock’s sell-off the risk-reward looks more balanced. AAL arguably has the highest deleveraging potential of any airline by mid-decade though this could also be a show-me story in the near-term,” noted Ravi Shanker, equity analyst at Morgan Stanley.

“We expect AAL to be a strong beneficiary of the rising tide in 2022 esp. in International and corporate though its Asia exposure means that the tailwind is likely to be the last to show up (but is likely to see significant pent-up demand when it does). Mgmt. is also sounding better on near-term costs compared to some of its large peers and if it can keep 2022 CASMxF to LSD-MSD above 2019 levels, this could drive upside to numbers.”

Several other analysts have also updated their stock outlook. Evercore ISI raised the target price to $19 from $17. BofA Global Research lifted the price objective to $10 from $7. Citigroup cut the price target to $20 from $20.5. Evercore ISI upped the target price to $17 from $15.

Technical analysis also suggests it is good to sell as 100-day Moving Average and 100-200-day MACD Oscillator signals a strong selling opportunity.

Check out FX Empire’s earnings calendar

Wall Street Week Ahead Earnings: Goldman Sachs, Procter & Gamble, United Airlines, and Netflix in focus

The following is a list of earnings slated for release January 17-21, along with a few previews. A number of big companies will report earnings in the week ahead, including Goldman Sachs and Bank of America, Procter & Gamble, Netflix, and a number of transportation companies. Investors will carefully monitor the latest news on the rapidly spreading Omicron coronavirus variant to see how it affects earnings in 2022.

Earnings Calendar For The Week Of January 17

Monday (January 17)

No major earnings are scheduled for release. The stock market in the U.S. will be closed in observance of Martin Luther King, Jr. Day.

Tuesday (January 18)

IN THE SPOTLIGHT: GOLDMAN SACHS

The New York-based leading global investment bank Goldman Sachs is expected to report its fourth-quarter earnings of $11.89 per share, which represents a year-over-year decline of about 2% from $12.08 per share seen in the same period a year ago.

The world’s leading investment manager would see a decline in revenue of nearly 1% to $11.65 billion from a year ago. It is worth noting that in the last two years, Goldman Sachs has surpassed market consensus expectations for profit and revenue most of the time.

“We expect Goldman Sachs to report mixed results, with revenues outperforming the consensus estimates and earnings missing the expected figure. The investment bank reported better than expected results in the last quarter, with the top-line increasing 26% y-o-y. This was driven by significant growth in the investment banking business, followed by higher global markets and consumer & wealth management revenues,” noted analysts at TREFIS.

“While investment banking grew on the back of growth in mergers &acquisitions (M&A) and equity underwriting deal volumes, global markets benefited from higher equity trading revenues. Similarly, the consumer & wealth management segment gained from an increase in outstanding loan balances. That said, the top-line was partially offset by negative growth in the asset management division, primarily due to lower equity investment revenues. We expect the same trend to continue in the fourth quarter. We estimate Goldman Sachs’ valuation to be around $447 per share which is 14% above the current market price.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE JANUARY 18

TICKER COMPANY EPS FORECAST
BAC Bank of America $0.78
SCHW Charles Schwab $0.83
CNXC Concentrix $2.54
HWC Hancock Whitney $1.33
IBKR Interactive Brokers $0.74
JBHT J.B. Hunt Transport Services $2.0
MBWM Mercantile Bank $0.85
ONB Old National Bancorp $0.38
PNFP Pinnacle Financial Partners $1.56
PNC PNC Financial Services $3.62
PRGS Progress Software $0.62
SBNY Signature Bank $3.92
TFC Truist Financial $1.27
UCBI United Community Banks $0.63

 

Wednesday (January 19)

IN THE SPOTLIGHT: PROCTER & GAMBLE, UNITED AIRLINES

PROCTER & GAMBLE: The world’s largest maker of consumer-packaged goods, is expected to report its fiscal second-quarter earnings of $1.66 per share, which represents year-on-year growth of just over 1% from $1.64 per share seen in the same period a year ago.

The Cincinnati, Ohio-based consumer goods corporation would post revenue growth of over 3% to $20.4 billion from a year ago. It is worth noting that the company has consistently beaten consensus earnings estimates in the last two years, at least.

“We believe strategy changes can sustain Procter & Gamble (PG) LT topline growth in the 4% range. In the US, a strong breadth of performance and share gains give us confidence that market share momentum is sustainable and supports LT topline growth above HPC peers. While near-term pressures from commodity/freight inflation will impact margins, we believe PG has stronger pricing power than peers, particularly with share gains,” noted Dara Mohsenian, equity analyst at Morgan Stanley.

PG trades at ~22.5x CY22e EPS, an HSD% discount to HPC peers CLX, CL and CHD, and looks compelling given our call for higher LT PG growth.”

UNITED AIRLINES: The major U.S. airline company is expected to report a loss for the eight-consecutive time of $-2.12 in the holiday quarter as the aviation service provider continues to be negatively impacted by the ongoing COVID-19 pandemic and travel restrictions.

However, that would represent a year-over-year improvement of about 70% from -$7.0 per share seen in the same period a year ago. The Chicago, Illinois-based airlines would post revenue growth of over 130% to $7.94 billion.

“Despite some headwinds around staffing issues, we expect United Airlines (UAL) to guide to a continued sequential improvement with capacity guided to be down in the 17-18% range in Q1, which incorporates domestic capacity down in the 1% range, while international capacity remains down 27%,” noted Sheila Kahyaoglu, equity analyst at Jefferies.

“Remaining in a Net Loss Position into Q1. We expect a continued sequential decline in CASM-ex to 11.63¢, which reflect a 9% increase vs. 2019 levels, which compares to the 13% increase we expect in Q4. Nonetheless, UAL will remain in a net loss position in Q1, before turning positive in Q2.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE JANUARY 19

TICKER COMPANY EPS FORECAST
AA Alcoa $2.5
ASML ASML Holding $4.3
CFG Citizens Financial Group $1.16
CMA Comerica $1.6
DFS Discover Financial Services $3.48
FAST Fastenal $0.36
FUL H.B. Fuller $1.06
KMI Kinder Morgan $0.27
MS Morgan Stanley $1.83
PACW PacWest Bancorp $1.06
PG Procter & Gamble $1.66
STT State Street $1.93
USB U.S. Bancorp $1.13
UAL United Airlines $-2.12
WTFC Wintrust Financial $1.56

 

Thursday (January 20)

IN THE SPOTLIGHT: NETFLIX

The California-based global internet entertainment service company NetFlix is expected to report its fourth-quarter earnings of $0.82 per share, which represents a year-over-year decline of over 30% from $1.19 per share seen in the same period a year ago.

However, the streaming video pioneer would post revenue growth of over 16% to $7.71 billion. It is worth noting that the company has beaten earnings per share (EPS) estimates just thrice in the last two years.

“We believe share performance is highly dependent on increasing global membership scale. Proven success in the US and initial international markets provides a roadmap to success in emerging markets, and scale should allow Netflix (NFLX) to leverage content investments and drive margins,” noted Benjamin Swinburne, equity analyst at Morgan Stanley.

“Higher global broadband penetration should increase the Netflix (NFLX) addressable market, driving member growth and providing further opportunity given NFLX’s global presence. Longer-term, we see the ability to drive ARPU growth, particularly given increased original programming traction.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE JANUARY 20

TICKER COMPANY EPS FORECAST
AAL American Airlines $-1.72
CSX CSX $0.42
FITB Fifth Third $0.91
ISRG Intuitive Surgical $1.01
KEY KeyCorp $0.56
MTB M&T Bank $3.24
NTRS Northern Trust $1.82
OZK Bank OZK $0.98
PPBI Pacific Premier Bancorp $0.85
PPG PPG Industries $1.2
RF Regions Financial $0.49
SASR Sandy Spring Bancorp $1.1
SIVB SVB Financial $6.29
TRV Travelers $3.77
UNP Union Pacific $2.66
WBS Webster Financial $1.11

 

Friday (January 21)

TICKER COMPANY EPS FORECAST
ALLY Ally Financial $2.0
FHB First Hawaiian $0.47
HBAN Huntington Bancshares $0.37
INFO IHS Markit $0.71
SLB Schlumberger $0.39

 

Sector Themes In Play In The Markets For 2022

Years like 2021 saw a solid broad-based performance in many stock market sectors. Relatively simple approaches such as Indexing and Sector Rotation did well. But with macro changes in play and many uncertainties for 2022, we may very well see broad indexes underperforming while individual sectors dominated by a few stocks really shine.

Dips will continue to be bought unless something significant changes. But let’s not forget that we’re long overdue for a substantial correction. Significant risk catalysts are:

  • Fed actions.
  • International conflicts (i.e., Russia and China).
  • Pandemic developments that are not currently known.

There’s always the risk of the unknown – the literal definition of a “Black Swan” event. We shouldn’t get too complacent, knowing that we may need to get defensive to protect capital suddenly. When it’s time to be defensive, let’s not forget that CASH IS A POSITION!

Sector theme DRIVERS FOR 2022

Many uncertainties about Covid and the lingering effects on the economy remain. Inflation has roared back to 30-year highs. Strong employment numbers and consumer spending are fueling significant growth in corporate earnings. We also have a shift in bias at the Fed on interest rates and quantitative easing. These are the “knowns” and are theoretically priced in.

For these reasons and more, we should expect more of a “Stockpicker’s Market” in 2022. Certain sectors will do well and weather corrections better than the broader markets.

Even short-term traders can gain an edge by paying attention to what sectors are strongest. Traders tend to benefit most from playing the strongest stocks in the strongest sectors for bullish trades and choosing the weakest stocks in weaker sectors for bearish trades. That “tailwind” can make a significant difference in results.

Let’s look at some sector themes and individual names to keep an eye on in 2022.

ECONOMIC NORMALIZATION

A long-anticipated return to a “normal” economy will continue to be a theme — we just don’t know if that will be Post-Covid or Co-Covid. Or when. Air travel, theme parks, hotels, cruise lines, etc., have all suffered in the persistent Pandemic. What does seem to be changing is the idea of a “new normal” where virus variants may be with us for years to come. We will adjust socially and economically to that for the foreseeable future. DAL, UAL, LUV, AAL are airlines to watch, and the JETS ETF may be a good way to play a general recovery in this sector.

5G INTERNET

The much-hyped rollout of 5G network technology had its share of setbacks and technology disappointments. But 2022 should see the 5G deployment start to take off as technical issues are worked out, and the promise of widespread coverage with transformational performance becomes real. In the background supplying the 5G infrastructure are AMD, QCOM, ADI, MRVL, AMT, XLNX, and KEYS. Along with infrastructure and testing companies, shares of major carriers T, TMUS, and VZ languished for much of the second half of 2021 and looked poised for recovery in the coming year.

ARTIFICIAL INTELLIGENCE

In all its various forms (including autonomous vehicles), AI will remain a developing trend. Big players in the space to watch include MSFT, AMAT, GOOGL, NVDA, AAPL, and QCOM.

EVs and AUTONOMOUS VEHICLES

Electric Vehicles (EVs) are nearing an inflection point where widespread adoption is poised to take off. Technology and cost competitiveness has improved where some EVs will reach price parity with their traditional internal combustion counterparts.

While there are many smaller players in the EV space, automotive stalwarts F, GM, and TM are investing very heavily. TSLA has been grabbing the headlines, but many others want to stake out their territory in the space, including whole tiers of manufacturers and infrastructure enablers like WKHS, XPEV, NKLA, and CHPT.

MATERIALS and MINING

Gold, silver, and related miners underperformed for much of 2021 and now look poised for a recovery year as inflation, and monetary concerns grow. GLD, SLV, GDX, GDXJ, SIL, SILJ look good as both longer and mid-term plays. Metals and miners may get hit initially with a significant downturn in stocks but could ultimately demonstrate their safe-haven potential.

Specific to the growth in EVs, battery technology, etc., copper, lithium, and related basic materials should see stronger demand ahead. FCX looks particularly interesting as a dual play on gold and copper. LIT may be a good ETF play on lithium battery technology.

SEMICONDUCTORS

The market for chips is primed for exponential growth. EV’s have about ten times the number of specialty semiconductors as conventional vehicles. AI, crypto, 5G, mobile devices, and ubiquitous computing should drive growth in the semiconductor sector for some time to come.

REAL ESTATE

Real Estate and Homebuilders should continue to do well while employment numbers remain strong and if interest rates don’t rise too quickly. The inventory shortage in most real estate markets will likely persist well into the new year.

Storage REITs like PSA, LSI, and CUBE have been big winners in the Covid economy and still have room to run.

SUMMARY

Many sectors still look bullish after gains in 2021. But there are “storm clouds” on the horizon, and we must not take future performance for granted.

Lastly, one of the simplest ways to assess how sectors are measuring up is to watch the charts for the S&P SPDR series sector ETFs and a few others. Here are some notable ones to watch:

https://www.thetechnicaltraders.com/wp-content/uploads/2021/12/Dec-31-article.png

These can give us a good starting place to look for leading stocks in winning sectors as the year unfolds.

Let’s remain vigilant for possible market corrections and may the wind be at our backs!

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TheTechnicalTraders.com

 

Airline, Cruise Stocks Suffer as Omicron Spike Chokes Holiday Travel

Airline and cruise stocks tumbled on Wednesday after continued flight cancellations and sailing halts due to adverse weather conditions and the ongoing COVID-19 crisis caused by the spread of the Omicron variant.

According to Reuters, flight-tracking website FlightAware.com reported that nearly 800 U.S. airlines cancelled flights Wednesday morning, and 1,120 flights were delayed. On Tuesday, Delta Air Lines and Alaska Air Group cancelled hundreds of flights, while Southwest Airlines cancelled only a few flights. This was caused by adverse weather conditions and an increase in Omicron cases.

“As European nations mull tighter restrictions to contain the spread of the Omicron variant, experts anticipate a similar trend in the U.S. and across the world in the coming months. As investors speculate a slower recovery timeline for the travel industry, the shares of Southwest Airlines have lost a quarter of their value since November,” noted analysts at TREFIS.

“However, the passenger numbers at TSA checkpoints are just 15% below pre-pandemic levels – indicating strong air travel demand despite heightened fears and tougher Covid norms. Notably, Southwest Airlines stock has lost $11 billion in market capitalization since February 2020 despite burning just $1.1 billion of operating cash over the period. Also, the domestic business contributes almost 97% of Southwest’s revenues and is likely to support earnings amid international travel blockades. Considering the negative impact of the Omicron variant for a quarter, Trefis believes that there is a sizable upside in Southwest Airlines stock.”

On Wednesday, Delta Air Lines stock closed 1.21% lower at $39.15, Alaska Air Group ended 1.46% down at $52.13 and Southwest Airlines finished 0.31% lower at $42.16.

In addition to cancelling 170 flights, Alaska Airlines has warned of more cancellations and delays throughout the week, while Delta plans to cancel 250 of 4,133 flights on Tuesday.

Moreover, Cunard, a cruise company owned by Carnival Corp., announced that the Queen Mary 2 would skip a scheduled stop in New York and instead remain in Barbados until Jan. 2. On Wednesday, Carnival Corp closed 0.48% lower at $20.80, Norwegian Cruise Line ended 1.53% down at $21.57 and Royal Caribbean down 0.04% at $78.22.

According to the US Centres for Disease Control and Prevention (CDC) as of Tuesday, 86 ships had been investigated, and three more were being monitored for cases of COVID-19. As a precautionary measure, the company added more crew members but did not elaborate on why more workers were needed.

A temporary ban on cruising may be reintroduced by U.S. health authorities as a result of the spread of the Omicron variant, just months after cruise companies resumed operations.

Check out FX Empire’s earnings calendar

American Airlines Cancels More Flights; Total Tops 2,300

Staffing shortages have hit American Airlines, Southwest Airlines Co and Spirit Airlines Inc in particular, as they ramp up flights ahead of the holiday season but face problems finding enough pilots and flight attendants.

“Flight Attendant staffing at American is strained and reflects what is happening across the industry as we continue to deal with pandemic-related issues,” flight attendants’ union APFA said.

American’s pilot union said last month they planned to picket the carrier’s major hubs to protest work schedule, fatigue, and a lack of adequate accommodation this summer.

The cancellations are another setback to the Texas-based company, which is already reeling from rising fuel and labor costs impacting the industry as the U.S. prepares to open borders to fully vaccinated travelers.

“The airline had particular weather issues that then spiraled into rippled cancellations and were compounded by an inability to fill out schedules from their labor reserves,” UBS analyst Myles Walton said.

Severe winds at the Dallas/Fort Worth International Airport reduced American’s arrival capacity by more than half, with the inclement weather also impacting staffing.

The company, however, hoped some of that impact could be mitigated with nearly 1,800 flight attendants returning from leave starting Monday.

“We expect considerable improvement beginning today with some residual impact from the weekend,” company spokeswoman Sarah Jantz said in a statement. American’s shares recovered losses to trade up 1%.

Meanwhile, rival airlines seemed to have fared better.

Delta Air Lines Inc said on Monday it has not experienced any weather-related cancellations so far, while United Airlines said there were no “widespread cancellations”.

(Reporting by Abhijith Ganapavaram in Bengaluru; Editing by Arpan Varghese)

American Airlines Cancels Nearly 850 Flights on Sunday

A spokeswoman for American, the world’s largest airline, said the company had canceled 848 flights as of 3:00 p.m. EST (19:00 GMT) Sunday, more than 16% of its total. That follows 548 trips canceled by American on Saturday, and 343 on Friday. Sunday’s figure could change as the day goes on.

In a letter to employees on Saturday, the Fort Worth, Texas-based company said severe winds at Dallas/Fort Worth International Airport reduced arrival capacity by more than half. Additional inclement weather means “our staffing begins to run tight as crew members end up out of their regular flight sequences,” the letter said.

Airlines have been tight on staffing due to the coronavirus pandemic that drastically reduced demand for air travel. As normal life resumes, many are ramping back up.

In Saturday’s letter, American said nearly 1,800 flight attendants are returning from leave starting on Monday, while more than 600 newly hired flight attendants will be coming on board by the end of the year.

The airline had offered voluntary leave to some employees to help weather the pandemic. It also furloughed 17,500 employees, though those people are now back to work, a company spokeswoman told Reuters on Sunday.

Southwest Airlines Co has also said it is hiring aggressively, aiming to add 5,000 new workers by the end of 2021.

Earlier this month, Southwest canceled nearly 2,400 flights over a three-day period, blaming bad weather and air traffic issues in Florida.

(Reporting by Nicholas P. Brown in New York; additional reporting by Maria Ponnezhath in Bengaluru and David Shepardson in Washington; Editing by Bill Berkrot)

IBM Weighs on The Dow; Nasdaq and S&P Gain Ground

After hitting an intraday record on Wednesday the Dow pulled back, with IBM tumbling after missing Wall Street estimates for quarterly revenue as orders in one business segment declined ahead of a spinoff next month.

The benchmark S&P clocked its seventh straight session of gains and of its 11 major industry sectors consumer discretionary was the biggest percentage gainer during the session while energy stocks were declining the most as crude oil futures fell on concerns about demand.

“For the most part you’re dealing with a slightly risk-off day with people going back to more defensive sectors” including big technology companies, said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance in Charlotte, North Carolina.

“You’re seeing oil down a little bit today so potentially there’s some global growth concerns. You’re seeing some inflation concerns as well.”

However, the CBOE Volatility index, also referred to as Wall Street’s fear gauge, hit its lowest point since early July during the session.

This suggests that investors do not see a big decline or upswing for stocks ahead despite concerns about supply-chain problems increasing costs, according to Shawn Cruz, senior market strategist at TD Ameritrade.

“The market may be saying the supply-chain issues that are driving up costs are going to be transitory because markets are discounting mechanisms they take what is expected that happen in the future, and assign a price right now,” Cruz said.

Cruz also pointed to earlier data showing that the number of Americans filing new claims for unemployment benefits dropped to a 19-month low last week, pointing to a tightening labor market.

According to preliminary data, the S&P 500 gained 13.32 points, or 0.29%, to end at 4,550.83 points, while the Nasdaq Composite gained 93.82 points, or 0.62%, to 15,215.50. The Dow Jones Industrial Average fell 7.38 points, or 0.02%, to 35,601.96.

Analysts were expecting S&P 500 third-quarter earnings to rise 33.7% year-on-year, with about 100 company reports in so far, according to the latest data from Refinitiv.

Tesla was the Nasdaq’s biggest boost during the session as investors digested the electric car maker’s upbeat earnings, despite a supply-chain warning.

American Airlines rose after the company posted a smaller-than-expected quarterly loss, while Southwest Airlines Co fell after it said it expected current quarter profit to remain elusive.

HP Inc gained as brokerages raised their price targets on the stock after the personal computer and printer maker forecast upbeat fiscal 2022 adjusted profit and raised its annual dividend.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Shreyashi Sanyal and Devik Jain in Bengaluru, Sinéad Carew in New York; Editing by Arun Koyyur and Matthew Lewis)

Marketmind: Back to The Blues

Markets are in a somber mood on Thursday.

There is little let up on the Chinese property sector front with investors wondering how much damage the Chinese economy might suffer from a potential default of embattled property giant China Evergrande Group – now possibly just days away.

Evergrande shares suffered a double-digit tumble after it scrapped a deal to sell a stake in its property group, though it also secured an extension on a defaulted bond, according to media reports.

Adding to the woes is resurgence of COVID-19 and ensuing curbs. Russia is suffering record deaths and has reported some COVID-19 infections with a new coronavirus variant believed to be even more contagious than the Delta one.

Poland is facing an explosion of cases that may require drastic action, according to its health minister, while Latvia starts its lockdown today until mid-November to slow a spike in infections.

Futures point to more pain ahead for U.S. stocks later in the day.

But a batch of fresh earnings results might sooth some frayed nerves.

Unilever and Hermes sales beat estimates, Truck maker Volvo profit beats forecast, but companies do flag lingering chip woes.

Barclays Q3 beats expectations on strong investment bank performance, while Anglo American Q3 production inches higher.

Earnings highlights in the U.S. to come today are Intel, AT&T and Danaher.

In emerging markets, Turkey’s central bank will take centre stage. Policy makers are expected to deliver another interest rate cut despite stubbornly high inflation after President Tayyip Erdogan’s midnight reshuffle of the monetary policy committee.

Key developments that should provide more direction to markets on Thursday:

-EU starts two day summit

-NATO defense ministers meet

-U.S. initial jobless claims/Philly Fed index/existing home sales

-U.S. 5-year TIPS auction

-Fed speakers: San Francisco President Mary Daly

-Emerging markets: Turkey, Ukraine central banks

-U.S. earnings: AT&T, Blackstone, Dow, American airlines, Southwest airlines, Alaska Air, Intel Whirlpool Mattell

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Karin Strohecker)

Wall Street Closes Lower on Jitters Ahead of Earnings, Fed Minutes

Adding to investor caution, the Federal Reserve is expected to release minutes on Wednesday from its last policy meeting, which market participants will scour for hints about when the U.S. central bank could begin tapering its massive bond-buying program.

All three major U.S. stock indexes ended in the red with the Dow down the most, weighed by healthcare and industrials.

Earnings unofficially kick off this week with results from JPMorgan Chase & Co on Wednesday and other banks to follow. JPMorgan’s shares shed 0.8% on the day, while the S&P 500 banks index edged down 0.6%.

Analysts expect to see strong U.S. profit growth for the third quarter. But a number of companies have warned of issues and investors are worried about how supply chain problems and higher prices will affect businesses emerging from the coronavirus pandemic.

“For the most part, institutional portfolio managers are of the view – let’s see what earnings look like and how much of a negative impact is being seen from shortages, higher rates and supply chain bottlenecks,” said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles.

“A lot of those factors are currently reflected where equity prices are now.”

The Dow Jones Industrial Average fell 117.72 points, or 0.34%, to 34,378.34, the S&P 500 lost 10.54 points, or 0.24%, to 4,350.65 and the Nasdaq Composite dropped 20.28 points, or 0.14%, to 14,465.93.

Six of the 11 major sectors of the S&P 500 ended the session in the red, with communications services suffering the steepest percentage loss.

Tesla advanced 1.7% after data showed the electric vehicle maker sold 56,006 China-made vehicles in September, the highest since it started production in Shanghai about two years ago. The company’s shares provided the biggest boost to the S&P 500 and the Nasdaq.

Shares of American Airlines Group rose 0.8% after the company estimated a smaller-than-expected adjusted loss for the third quarter and signaled improved bookings for the rest of the year.

MGM Resorts surged 9.6% after of Credit Suisse upgraded the stock to “outperform” from “neutral.”

Nike Inc gained 2.0% after Goldman Sachs initiated coverage with a “buy” recommendation.

Investors also weighed comments from Fed Vice Chair Richard Clarida, who said the central bank has all but met its employment goal for reducing its bond buying program.

U.S. data showed the labor market remained tight, with a record number of Americans quitting their jobs and job vacancies numbering more than 10 million, stoking inflation fears as employers hike wages to attract and retain workers.

Wednesday’s consumer price index report will attract attention from investors seeking clues about inflation.

Advancing issues outnumbered declining ones on the NYSE by a 1.38-to-1 ratio; on Nasdaq, a 1.42-to-1 ratio favored advancers.

The S&P 500 posted 10 new 52-week highs and 10 new lows; the Nasdaq Composite recorded 46 new highs and 94 new lows.

Volume on U.S. exchanges was 9.17 billion shares, compared with the 10.80 billion average over the last 20 trading days.

For a look at all of today’s economic events, check out our economic calendar.

(Additional reporting by Devik Jain, Shreyashi Sanyal in Bengaluru and Federica Urso in Gdansk; Editing by Saumyadeb Chakrabarty, Arun Koyyur and David Gregorio)

Wall Street Ends Higher on Optimism About U.S. Debt-Ceiling Deal

Top U.S. Senate Republican Mitch McConnell said his party would support an extension of the federal debt ceiling into December. This would head off a historic default that would exact a heavy economic toll.

“McConnell made some dovish comments about temporarily extending the debt ceiling,” said Jay Hatfield, founder and portfolio manager at Infrastructure Capital Advisors. “That’s going to be interpreted in the short-run as positive.”

McConnell’s offer could provide an off-ramp to a months-long standoff between President Joe Biden’s Democrats and McConnell’s Republicans, who had been expected on Wednesday to block a third attempt by Senate Democrats to raise the $28.4 trillion debt ceiling.

Stocks were lower for much of the session after a strong showing of private jobs in September fueled bets the Federal Reserve could start reining in monetary stimulus soon.

The Dow Jones Industrial Average rose 0.3% to end at 34,416.99 points, while the S&P 500 gained 0.41% to 4,363.55.

The Nasdaq Composite climbed 0.47% to 14,501.91.

Mega-cap growth stocks Amazon and Microsoft both rose more than 1% after the benchmark U.S. 10-year Treasury yield retreated from three-month highs by early afternoon. [US/]

The ADP National Employment Report showed private payrolls increased by 568,000 jobs last month. Economists polled by Reuters had forecast a rise of 428,000 jobs.

“Positive labor market data comes with the implication that the Fed can tighten policy at a quicker pace. But the fact that hiring is up shouldn’t be discounted — it’s definitely a good thing in terms of recovery,” said Mike Loewengart, managing director, investment strategy at E*TRADE Financial.

The more comprehensive non-farm payrolls data is due on Friday. It is expected to cement the case for the Fed’s slowing of asset purchases.

Oil prices hit multi-year highs early, but crude prices retreated from those highs while the S&P 500 energy sector index slid over 1%, the weakest performer among 11 sector indexes.

American Airlines Group fell 4.33% after Goldman Sachs cut its rating on the carrier to “sell” from “neutral”.

Shares in steelmaker Nucor Corp dropped 2.75% after Goldman Sachs lowered its rating to “neutral” from “buy”.

Declining issues outnumbered advancing ones on the NYSE by a 1.31-to-1 ratio; on Nasdaq, a 1.58-to-1 ratio favored decliners.

The S&P 500 posted 3 new 52-week highs and 9 new lows; the Nasdaq Composite recorded 31 new highs and 241 new lows.

Volume on U.S. exchanges was 10.6 billion shares, compared with the 11.0 billion average over the last 20 trading days.

For a look at all of today’s economic events, check out our economic calendar.

(Additional reporting by Shreyashi Sanyal, Devik Jain and Sruthi Shankar in Bengaluru; Editing by Saumyadeb Chakrabarty, Maju Samuel and David Gregorio)

A Surge In Covid Cases Is Affecting August Revenue, Says American Airlines

The Coronavirus cases in the United States are rising, and it is affecting American Airlines’ revenue projection for August.

Covid Is Affecting August Revenue

American Airlines revealed earlier today that its revenue for August is lower than anticipated, thanks to the surge in Covid-19 cases across the United States. The surge in Covid cases has led to a decline in bookings, and American Airlines believe it could get worst if the situation is not brought under control.

Vasu Raja, American Airlines’ chief revenue officer, told investors that the current recovery is a choppy one for the company, and they had expected it to be that way. Vasu added that “Given the fluidity of the current demand environment, we are not ready to make definitive adjustments to our capacity plans or guides at this point in time.”

According to the chief revenue officer, American Airlines recorded a better-than-expected revenue in July. However, the increase in Covid cases across the United States has resulted in weaker near-term bookings and higher cancellations.

The delta variant of Covid-19 has been rapidly rising over the past few weeks. However, the authorities are working hard to ensure people get vaccinated over the next few months. With enough people vaccinated, airline activities could resume normally across the United States.

AAL Up By 1.5% Today

Despite the grim news from American Airlines, the company’s stock price is up by 1.5% over the past 24 hours. At the time of this report, AAL is trading at $20.15 per share. Year-to-date, the company’s stock price is up by over 30%.

AAL stock chart. Source: FXEMPIRE

American Airlines began 202 trading at $15 per share, but it has experienced rapid growth, hitting a peak of $25 per share in June. However, AAL slightly retracted in July, but it began to recover this month.

The increase in the number of Covid vaccinations across the United States is one of the key reasons for the surge in the company’s activity last month.

Southwest Airlines Lowers Q3 Revenue Guidance

Southwest Airlines Co. (LUV) is trading lower on Wednesday after warning about Q3 2021 revenue due to “close-in’ cancellations and bookings as a result of the Delta variant. The news is bearish for the broader airline industry, for two reasons. First, it tells us that leisure travelers are having second thoughts about vacations and trips to see grandma while second, it defies predictions that widespread business travel would resume in the fourth quarter.

Red Flag for Airline Industry

The airline has outperformed its peers since March 2020, with a domestically-focused schedule avoiding the gauntlet of international travel restrictions. The recovery wave reached the 2018 peak in March 2021 before reversing, unlike American Airlines Group Inc. (AAL), United Airlines Holdings Inc. (UAL), and Delta Air Lines Inc. (DAL), which stalled well below similar levels. In turn, this raises odds that rivals will follow with identical warnings in coming weeks.

According to the release, Southwest “recently experienced a deceleration in close-in bookings and an increase in close-in trip cancellations in August 2021, which are believed to be driven by the recent rise in COVID-19 cases associated with the Delta variant. Based on the assumption that COVID-19 cases remain elevated in the near-term and current revenue trends in August continue into September, the current outlook for Q3 2021 operating revenues has worsened by an estimated three to four points.”

Wall Street Asleep at the Wheel

Wall Street consensus has ignored the Delta variant, with a ‘Buy’ rating based upon 16 ‘Buy’, 3 ‘Overweight’, and 4 ‘Hold’ recommendations. No analysts are recommending that shareholders reduce positions or move to the sidelines. Price targets range from a low of $57 to a Street-high $85 while the stock is set to open Wednesday’s session about $7 below the low target. This disconnect indicates that Main Street understands the current risks better than the analyst community.

Southwest posted an all-time high at 66.99 in December 2017 and entered a trading range that broke to the downside in February 2020, dropping the stock to a 6-year low. The subsequent uptick stalled within three points of that peak in April 2021, giving way to a correction that pieced the 200-day moving average in the 50s in July. Two tests at that level have failed while this morning’s decline is holding within a short-term trading range. Accumulation has dropped to a 52-week low, raising odds for continued downside into the lower 40s.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication. 

Stalling Signs? Taking a Look Under the Hood of US Equities

Greetings. I hope this article finds you and yours well. Today, we are taking a look at some additional market indicators and internals to get an unbiased perspective on things.

First, I want to preface things by mentioning that I am not suggesting that I am fully bearish on the S&P 500 or stocks right now. However, I am taking more of a cautious stance at the moment.

 

Figure 1 – S&P 500 Index April 15, 2021 – July 21, 2021, Daily Candles Source stockcharts.com

Nothing new to see here. Just another pedestrian pullback to the 50-day SMA and a bounce back. This pattern has repeated itself several times since the pandemic lows in the $SPX. It won’t repeat itself forever – that would be too easy.

Since it is earnings season, let’s talk earnings multiples.

Feeling bullish? It can be challenging to get excited about an $SPX at 4400 with an estimated 46.40 P/E ratio (trailing twelve months). We are in the middle of earnings season, so we will have a clearer figure soon.

Figure 2 – S&P 500 PE Ratio 1870 – July 22, 2021. Source multpl.com

Stocks are not cheap by any measure, folks. However, with easy monetary policy and low rates, this is to be expected. What could be the catalyst to derail this freight train?

How about the Dow Transports? This index used to be talked about much more frequently and is followed closely by students of Dow Theory. We just don’t hear much analysis about it on Fox Business, CNBC, or Bloomberg these days.

The Dow Transports (Dow Jones Transportation Average) $TRAN is an index comprised of 20 companies.

Here are the index components and weighting as of December 2020:

Alaska Air Group, Inc. 2.55%

American Airlines Group Inc. 0.76%

Avis Budget Group, Inc. 1.80%

C.H. Robinson Worldwide, Inc. 4.61%

CSX Corporation 4.39%

Delta Air Lines, Inc. 1.94%

Expeditors International of Washington, Inc. 4.61%

FedEx Corporation 13.10%

J.B. Hunt Transport Services, Inc. 6.70%

JetBlue Airways Corporation 0.70%

Kansas City Southern 9.73%

Kirby Corporation 2.51%

Landstar System, Inc. 6.60%

Matson, Inc. 2.79%

Norfolk Southern Corporation 11.42%

Ryder System, Inc. 3.12%

Southwest Airlines Co. 2.26%

Union Pacific Corporation 9.91%

United Airlines Holdings, Inc. 2.11%

United Parcel Service, Inc. 8.39%

Figure 3- Dow Jones Transportation Index January 4, 2021 – July 21, 2021, Daily Candles Source stockcharts.com

Here, and in contrast to the Dow Jones Industrial Average, we can see that the Transports topped back on May 10, 2021. Proponents of Dow Theory would argue that this creates a lack of confirmation and that the subsequent highs in the Dow Jones Industrial Average are not valid due to this lack of confirmation.

What could be the reason for the stall in the Transports? Input Costs? While fuel costs have risen, what about the rise in retail spending? Is the stimulus-powered consumer pocket not enough to counterbalance the rising input costs?

If input costs are the reason for the stalling, what about the other companies that rely on raw materials to make their products? Recent inflationary data has not affected these companies’ stock prices yet (for the most part).

What if the Fed eases off the gas pedal?

While it is very difficult (if not impossible) to pick market tops (and I don’t advocate trying to do that), it is wise to look at certain market indicators to get an understanding of what is going on beneath the surface.

It is easy to look at the chart of the $SPX and see that it is moving higher, from the bottom left-hand corner of the chart to the top right-hand corner. However, that does not tell the whole story of what is happening in the US equity markets.

We will be monitoring the above and previously mentioned market internals and indicators for more clues in the coming days, weeks, and months. I think it is critical to be aware of metrics such as the above as the broader indices trade near all-time highs.

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For a look at all of today’s economic events, check out our economic calendar.

Rafael Zorabedian
Stock Trading Strategist

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Increase In Covid Cases Cause Airline Stocks To Plunge

The shares of some major airline companies in the United States are down at Monday’s pre-market trading session thanks to a surge in the number of Coronavirus cases in the country.

UAL, AAL And DAL All Trading In The Red

Delta Air Lines (DAL), American Airlines and United Airlines are all in a bearish mode today thanks to the news of a surge in the number of Covid cases in the United States. At Monday’s pre-market trading session, the shares of United Airlines are down by 5%, with American Airlines also down by roughly 5% at the time of this report.

UAL stock chart. Source: FXEMPIRE

Delta Air Lines is also not left out, as the stock is down by 4.1% over the past few hours. The companies’ stocks were performing excellently in recent weeks, thanks to the rapid vaccination program put in place by the Biden administration. Travel demand has increased in recent months, with the Transportation Security Administration recording over 2 million passengers at US airports yesterday. This is the highest Covid level recorded since February 2020, weeks before the pandemic hit the United States.

Delta Variant Is Spreading

The concern amongst travelers is the spread of the Delta variant of Covid-19. The Delta Covid variant has become the dominant strain in the United States, and this is affecting the broader stock market. However, travel and hospitality stocks are usually the most affected, with airlines and hotels suffering the most over the past few months.

Following the increase in the Delta variant, some regions in the United States are reinstating some of the earlier lifted restrictions. Los Angeles, for instance, has reinstated the indoor mask mandate while the Southern Nevada Health District is asking people to also wear masks indoors as the cases increase across the state.

AAL stock chart. Source: FXEMPIRE

Year-to-date, both American Airlines and United Airlines have performed excellently. AAL began the year trading at $15 per share, but it is now up by 20% and is currently trading above $18. UAL began the year trading at $41, but after a period of growth, it is now consolidating and trades just above the $43 mark.

Slide in Coronavirus-Sensitive Stocks Suggests Growing Worries over Delta Variant

Declines in the shares of companies tied to the reopening trade have broadly outpaced those of other so-called value stocks, which have been battered on worries that economic growth will be slower than expected in coming months.

Shares of cruise stocks Carnival Cruise Lines and Norwegian Cruise Line Holdings have slumped 10% and 9%, respectively, in July, while American Airlines Group dropped 4% and United Airlines Holdings was off 5%. MGM Resorts International has fallen 5.5%, while Expedia Group has dropped 1.3%.

The Russell 1000 value index, which includes economically sensitive stocks, has fallen by 0.9% in the same time frame, while the S&P 500 has risen 0.5% in July.

“There is a lot of uncertainty and I think the market is trying to add up how much risk this poses to global supply chains and activity down the road,” said Steve Englander, head of North America macro strategy at Standard Chartered.

Since July 1, a basket of coronavirus-sensitive stocks tracked by Standard Chartered is down 7.3%, and off 9.4% relative to a group of tech and other stocks that outperformed during the pandemic last year.

The yield on the benchmark 10-year Treasury note has dropped about 20 basis points to 1.29% this month and was falling for an eighth straight session, marking the longest streak since a nine-session drop that ended on March 3, 2020, as the COVID-19 pandemic in the United States was gaining speed.

The availability of vaccines – including their apparent ability to keep even those infected from developing serious complications – suggests that the extent of the shutdown measures last year to control the virus will not be required.

Still, some regions, including those without as much access to vaccines, are grappling with rising cases or putting restrictions in place. Cases are rising in places such as Spain and England, although the British government plans to reopen the economy later this month.

In Australia, Sydney has had a strict stay-at-home order in force since late last month, while Japan on Thursday declared a state of emergency in Tokyo, putting restrictions in place through Aug. 22. The pullback in coronavirus-sensitive stocks likely stems in part from concerns the variant spread could restrict travel and slow growth, said Walter Todd, chief investment officer at Greenwood Capital in South Carolina. But those stocks may have been due for a decline after such a sharp run, he said. “A lot of these stocks moved quite significantly off the vaccine news,” Todd said. “Part of this is concern about the re-emergence of this variant, but also just the fact … you are giving some back.”

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Lewis Krauskopf; Editing by Ira Iosebashvili, Dan Grebler and Peter Cooney)

 

Analysis: Canadian Aero Suppliers Face Labor Crunch as Travel Rebounds

By Allison Lampert

The squeeze has emerged as a warning signal for aviation’s recovery internationally and accelerates a shift in the workforce toward fast-growth sectors like electric vehicles, they said.

As suppliers in the aerospace-making hub of Quebec return to hiring mode, several interviewed by Reuters said they feared the exodus of talent could get more acute with an aging workforce and some training programs facing lower enrollment.

“Some companies are growing faster, others slower. But everyone is looking for workers,” said Suzanne Benoit, president of Quebec aerospace trade group Aéro Montreal.

Canada’s flagship business-jet maker Bombardier is experiencing a “competitive job market” as it goes back to recruiting, a spokeswoman said.

Aerospace joins a list of sectors facing challenges to adjust to the sudden revving up of the North American economy.

In the United States, statistics showing lower employment in manufacturing have raised concerns about supply constraints.

And in Canada, where lockdowns stayed in place longer, economists are predicting a rush of hiring in June.

Demand could push wages up for workers in popular categories like machinists, although some suppliers are also recruiting skilled immigrants from Mexico, Tunisia and Morocco.

Montreal, the world’s third-largest aerospace center, fears a delay in its economic recovery if jobs can’t be filled.

“The risk … is that we won’t have enough workers to carry out contracts so we will have to refuse contracts,” Benoit said.

Nancy Venneman, president of engineering firm Altitude Aerospace Canada, said pressure could pile up further in the fall when customer projects like product upgrades and aircraft modifications delayed by the pandemic return.

Aerospace was one of the world industries worst-hit by the pandemic as traffic plummeted in 2020, grounding fleets. But it has set ambitious plans to restore output in coming years.

Some suppliers for Europe’s Airbus have warned they may struggle to meet production goals.

Boeing has warned of supply constraints after a “more robust” recovery than expected.

And this week, American Airlines canceled 1% of its July flights amid a labor shortage at some hubs.

Aerospace and defense companies announced 115,089 job cuts for the U.S. market from March 2020 to May 2021, compared with 18,337 announced in 2018 and 2019 combined, according to global outplacement firm Challenger, Gray & Christmas.

SECTOR COMPETITION

Mario Sévigny, co-founder of MSB Group, which produces components for private jetmakers like Bombardier and General Dynamics Corp’s Gulfstream, said it would take six to nine months to meet a potential production increase due to scarce labor.

While a Canadian program protected some jobs by defraying part of workers’ salaries, it didn’t cover the entire amount which led to layoffs. Some local employers like a unit of Airbus criticized the level of support from Ottawa.

The Aerospace Industries Association of Canada (AIAC), which accounts for over 95% of aerospace activity in Canada, said more than half its members had to lay off employees.

Aerospace is, meanwhile, competing for young workers with fast-rising industries like electric transport.

The average age of an aerospace manufacturing worker in Canada is 54, according to AIAC.

The École nationale d’aérotechnique, Quebec’s largest aeronautics college which offers training in fields like aviation maintenance, said registrations in its three-year programs aimed largely at recent high school graduates dropped 20% for the fall 2021 session.

While aerospace has faced previous crises, the duration of COVID-19’s impact has driven workers elsewhere, Benoit said.

Some went to transport companies that make electric buses, like fast-growing Lion Electric Co and Nova Bus, a division of Sweden’s Volvo Group.

Hugue Meloche, chief executive of components maker Meloche Group which supplies the locally-produced Airbus A220 jet, needs to hire about 70 people a year over five years.

“We are losing a lot of workers who are going to other sectors that weren’t affected by the pandemic,” he said.

(Reporting By Allison Lampert in Montreal; Editing by Nick Zieminski)

Airline Bosses Call on Uk and U.s. To Lift Trans-Atlantic Travel Restrictions

After more than a year of restrictions, the CEOs of American Airlines, IAG unit British Airways, Delta Air Lines, United Airlines and JetBlue Airways Corp said high vaccination rates in both countries meant travel could restart safely.

The push for reopening trans-Atlantic routes on Monday comes ahead of meetings between U.S. President Joe Biden and British Prime Minister Boris Johnson at the G7 meeting of advanced economies later this week in Cornwall, southwest England, this week.

The pair must use those meetings to agree to restart travel, British Airways chief executive Sean Doyle said in a statement ahead of an online press conference.

“We urgently need them to look to the science and base their judgements on a proper risk analysis, allowing us all to benefit from the protection offered by our successful vaccine rollouts,” Doyle said.

Since March 2020, the United States has barred nearly all non-U.S. citizens who have been in the United Kingdom within the previous 14 days from entering the country. Most U.S. travellers visiting the United Kingdom must quarantine for 10 days upon arrival.

The need for a reopening is much stronger for Britain-based airlines British Airways and Virgin Atlantic which are not benefiting from a rebounding domestic market like their U.S. peers.

(Reporting by Sarah Young in London and David Shepardson in Washington; editing by Michael Holden)

Israel Looks to Back-Up Airport as Flight Cancellations Mount

By Sarah Young and Dan Williams

Palestinian militants have repeatedly shelled the Tel Aviv area during hostilities that erupted on Monday, raising safety concerns over Ben Gurion Airport, Israel’s main airport, and prompting it to reroute some flights to Ramon Airport, some 200 km (125 miles) to the south, which serves Eilat.

“The safety and security of our colleagues and customers is always our top priority, and we continue to monitor the situation closely,” British Airways said after cancelling its flights to and from Ben Gurion for Thursday.

Hamas militants in Gaza said they had launched a rocket at Ramon Airport on Thursday, but the Israel Airports Authority said that no rocket had struck Ramon and that it was operating as normal. The airport, which opened in 2019, can handle about 2 million passengers a year. It is connected by bus routes to the north, although there is no train service.

Its arrivals board showed several El Al Israel Airlines Ltd. flights from abroad that had been originally scheduled to land at Ben Gurion.

An Israeli official said the two airports were operating in sync. Ben Gurion was handling cargo, private and some other flights, and Ramon is “open for landing international commercial flights” and running scheduled domestic flights, he said.

Social media carried footage, purportedly taped by a passenger on an El Al flight from Brussels that was the first plane rerouted to Ramon, showing the view through the window of rockets being fired and intercepted over Tel Aviv. Reuters could not independently verify the footage.

UK-based Virgin Atlantic cancelled its flights to Tel Aviv for Wednesday and Thursday.

Spanish airline Iberia also cancelled its flight to Tel Aviv from Madrid on Thursday and back on Friday a spokeswoman said, while Germany’s Lufthansa also cancelled its flights.

“Due to the current situation in Israel, Lufthansa is suspending its flights to Tel Aviv until Friday, May 14,” the airline said.

Wizz Air said it had delayed its Thursday flight from Abu Dhabi to Tel Aviv until Friday.

Emirati carrier Flydubai said it was continuing to operate daily flights from Dubai to Tel Aviv. The airline was scheduled to operate three flights on Thursday, its website showed, while a fourth, night-time flight was cancelled.

United Airlines, Delta Air Lines and American Airlines on Wednesday all cancelled flights between the United States and Tel Aviv.

Virgin Atlantic had said earlier this week that bookings to Israel had soared 250% week on week after an announcement by Britain that Israel was on its “green list” for the reopening of overseas leisure travel during the COVID-19 pandemic.

But an explosion of violence, with fighting in Jerusalem and the Gaza Strip causing mounting civilian deaths, have made international airlines wary of the region.

Israel’s national airline El Al has said it was ready to operate additional planes to make up for shortfalls in foreign carriers.

British airline easyJet said that it was not yet cancelling its flights to Tel Aviv. Its next flight there is from Berlin and not scheduled until May 16, with a service from London Luton to Tel Aviv scheduled for May 18.

(Reporting by Sarah Young; Additional reporting by Inti Landauro in Madrid, Christoph Steitz in Frankfurt and Alexander Cornwell in Dubai; Editing by Michael Holden, Carmel Crimmins and Hugh Lawson)

Frontier CEO Says Now Making Money with Low Fares in Pandemic as Stock Debuts

By Tracy Rucinski

The airline started generating positive cash flow at the beginning of March, a key milestone for an industry that has been burning money after drastically scaling back flights last year as demand tanked.

Frontier is now benefiting from a recovery driven by domestic leisure travel, its specialty, flying more capacity this March than in the same month of 2019.

“Coming out of this, we’re in the best position we believe of anyone in the space given our concentration in the domestic leisure business and our ability to make money with low fares,” Biffle said in a virtual interview from New York.

The airline, owned by private equity firm Indigo Partners, whose managing partner is no-frills tycoon Bill Franke, is seeking to raise around $600 million from its initial public offering, its second attempt to go public.

Frontier on Wednesday priced its initial public offering of 30 million shares at $19 per share, the low end of its marketed range of $19-$21, likely underscoring the risks involved as the airline industry pulls out of its worst crisis.

Airline investments have been notoriously volatile in the past. The head of planemaker Boeing Co said on Wednesday the pace of vaccinations hold the key to the industry’s recovery to prior levels.

Environmental groups have called into question the industry’s plans for reducing emissions and say cheap fares such as those practiced by ultra-low-cost carriers over-stimulate the demand for air travel and contribute to global warming.

Frontier, now valued at about $4 billion, is offering 15 million shares, and will receive net proceeds of about $266 million, the carrier said.

It will use the proceeds, half going onto its balance sheet and half to Indigo and other selling shareholders, to fund growth and manage debt, including repaying some of the $150 million in government loans from a COVID-19 relief package.

That will help restore its balance sheet to near pre-pandemic levels and allow it to continue growing by 10% to 15% a year, Chief Financial Officer Jimmy Dempsey said.

The listing follows a stellar debut by Apollo Global Management-backed Sun Country Airlines last month.

Like other U.S. budget carriers, Frontier took on less debt and had a lower cash burn than large legacy airlines, creating a better financial position for a recovery that Biffle said is coming fast.

Frontier, with $1.25 billion of revenue in 2020, is targeting growth from all of its key U.S. cities beyond its home base Denver, where it has roughly 100 non-stop flights, including popular Florida destinations such as Orlando and Miami. It plans to open Tampa and Atlanta routes later this year.

The airline averted employee furloughs during the pandemic and was among the first to announce pilot and flight attendant hires. It expects to hire roughly 700 employees this year as it receives six new aircraft.

It hires roughly 100 employees per airplane, including mechanics and ground staff, the executives said.

Frontier has 156 aircraft on order with Airbus SE and the new jets will feature lighter-weight seats debuted last week to cut its fuel burn.

The airline generates 43% fuel savings compared with other U.S. airlines, making it the most fuel-efficient U.S. carrier, according to a Frontier statement last week.

“We live in Colorado,” Biffle said, adding: “ESG is real.”

(Reporting by Tracy Rucinski, Editing by Sherry Jacob-Phillips)

U.S. Airlines See Recovery Signs, United Expects to End Cash Burn in March

By Tracy Rucinski and Sanjana Shivdas

“I do think we’re near the end of the virtual world,” United Chief Executive Scott Kirby said at a J.P. Morgan conference.

In January, United said an average daily core cash burn of $19 million in the fourth quarter would likely continue in the beginning of 2021, with improvements dependent on a recovery in demand.

Now it expects core cash burn to be positive in March, Kirby said. That is expected to continue after March, assuming the current bookings trajectory remains in place, he said.

Chicago-based United, which had been among the most pessimistic of the airlines heading into the pandemic a year ago, is the first to say it could hit the industry’s cash burn milestone.

Shares of United surged 9% to $61.49 in morning trading. The Dow Jones U.S. Airlines Index was up 5%.

Delta Air Lines, Southwest Airlines and JetBlue Airways each said first-quarter revenue would decline at the low end of projections or less than previously forecast as vaccine rollouts accelerate and more people plan vacations or visits to friends and relatives

Delta CEO Ed Bastian, speaking at the same conference, said there are “real glimmers of hope” and that he was “cautiously optimistic” that the airline could halt its cash burn this spring.

More than 1.3 million passengers were screened in U.S. airports on Friday and Sunday, according to Transportation Security Administration data, the highest number since the pandemic crushed air travel in 2020.

Delta, which said it will use cash for aircraft purchases in the second quarter, expects its first-quarter revenue decline to be at the low end of its forecast for a 60% to 65% decline from the same quarter in 2019, before the onset of the pandemic.

Southwest forecast lower cash burn in the first quarter on Monday and a lower decline in operating revenue for February and March than previously forecast.

JetBlue also forecast a slowing pace in its first-quarter revenue drop, projecting a decline of between 61% and 64%, compared with the same period in 2019. It had previously forecast a fall in revenue of 65% to 70%.

American Airlines, the most leveraged U.S. airline, also said on Monday that bookings had increased but did not provide concrete guidance. However, its CEO said the company is not looking to raise any more financing after a $10 billion debt deal last week.

(Reporting by Tracy Rucinski and Sanjana Shivdas; Additional reporting by Ankit Ajmera; Editing by Louise Heavens, Paul Simao and Jonathan Oatis)