U.S. airline profits will come under pressure in 2023 as airlines look to pay more to retain pilots amid worries of a potential recession on travel demand.
Major carriers like United, American, Delta and Southwest have rushed to add staff after a faster-than-expected rebound in the U.S. travel market.
Some airlines have had to hand out bumper contracts to pilots, stoking concerns about a rise in costs as they recover from the pandemic, when they were saddled with heavy debt loads.
“Margins are set to take a hit in 2023 as airlines ratify new contracts with labor groups,” Cowen analyst Helane Becker said last month.
DELTA AIR LINES OFFERS PILOTS A NEW CONTRACT AS POTENTIAL STRIKE LOOMS
“We expect pilot pay, which represents approximately 40% of labor expense, will increase by 20% to 30% under the new agreements.”
In a recent note, BofA Global Research estimated the industry will need to hire about 5,200 pilots per year from 2024-2030.
Last month, Delta offered a 34% pay hike to pilots, which aviators at rival carriers described as a new “benchmark.”
“Delta’s recent tentative pilot agreement, assuming it is ratified, could drive incremental unit costs higher by 2%, and 2%-3% higher for American, Southwest and United,” Barclays analyst Brandon Oglenski said Wednesday.
While costs take center stage, robust travel demand, fueled by a pent-up desire to venture out and household savings accumulated during the pandemic, could provide some relief.
Investors will be looking for commentary from executives on whether demand is holding up, beginning with Delta, which reports results Friday.
DELTA ANNOUNCES FREE WI-FI BEGINNING FEBRUARY 1
American Airlines on Thursday forecast a higher fourth-quarter profit as the Texas-based carrier benefited from strong demand for travel during the key holiday season.
Shares of American, Delta, United and Southwest fell between 14% and 30% in 2022 due to mass cancellations and economic worries.
* Analysts estimate United Airlines’ Q4 revenue will rise by 49% when it reports results Jan. 17; earnings per share is estimated at $2.15
* Analysts estimate American Airlines’ Q4 revenue will rise by about 35% when it reports in the next couple of weeks; earnings per share is estimated at $0.60
* Analysts estimate Delta Air Lines’ Q4 revenue will rise by about 29% when it reports Jan. 13; earnings per share is estimated at $1.26
* Analysts estimate Southwest Airlines’ Q4 revenue will rise by about 24% when it reports on Jan. 26; earnings per share is estimated at $0.33
AMERICAN AIRLINES RAISES REVENUE, PROFIT EXPECTATIONS
* For American Airlines, two of 20 brokerages rate the stock “buy” or higher, 15 “hold” and three “sell” or lower. Their median price target is $15, according to Refinitiv data.
* For United Airlines, 12 of 21 analysts rate the stock “buy,” six “hold” and three “sell.” Their median price target is $51.
* For Southwest Airlines, 15 of 21 analysts rate the stock “buy,” six “hold.” Their median price target is $44.
* For Delta Air Lines, 18 of 20 analysts rate the stock “buy,” two “hold.” Their median price target is $46.
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