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Two analysts covering Southwest Airlines took two different tacks on the action, with one analyst raising the target price and the other lowering the equivalent of Hold. However, in the era of the coronavirus pandemic, Southwest has been one of the toughest airline stocks.
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Southwest Airlines shares are running low in Wall Street crosswinds. Deutsche Bank’s Michael Linenberg, which has a buy rating on the stock, raised its target price to $ 48 from $ 44 on Monday. However, Wolfe Research analyst Hunter Keay took the opposite tactic, downgrading the shares to Outperform’s Peer Perform.
Southwest’s average share price target (ticker: LUV) is $ 42, and most analysts rate it the Buy or Hold equivalent, but today’s mourning moves reflect turmoil in the industry. Travel momentum has increased considerably since spring, but appears to be decreasing now that Covid-19 cases are on the rise again. Meanwhile, airlines are preparing to report second-quarter earnings with Delta Air Lines (DAL) kicking off the earnings season on Tuesday. Analysts expect traders to report big losses, but stocks are likely to move based on management’s prospects and plans to keep costs tight to overcome the crisis.
Southwest shares fell 1.6% in trading on Monday, falling more than the 0.6% decline in the NYSE Arca Airline index.
So far this year, Southwest has been one of the toughest airline stocks, falling around 39% compared to a 51% loss for average airline stocks. Its market capitalization is now worth $ 19.6 billion, making it more valuable than any other airline, including United Airlines Holdings (UAL), Delta, and American Airlines Group (AAL).
Southwest runs a primarily national network focused on leisure travelers and maintains one of the strongest balance sheets in the industry. Those attributes are proving to be especially valuable: leisure travel has recovered faster than business travel and long-haul international flights. And Southwest has not raised as much capital as other operators, underpinning the value of its common stock.
Southwest now tiptoes back to the international vacation markets. The airline restarted service on July 1 to Cancun and Los Cabos, Mexico; Nassau, Bahamas; and Montego Bay, Jamaica. The airline planned to start flights to Cuba, but postponed the service until August 1, due to restrictions on international visitors due to Covid-19.
The challenge for Southwest and other airlines now is that travel momentum may be dwindling due to the recent increase in Covid-19 cases and new quarantine rules issued by more than a dozen states and some cities. Canada and Europe remain largely closed to American visitors. And fare prices may be under pressure. According to Cowen, published rates increased 8.3% year-over-year during the week ending July 12. But rates fell 1.2% week-to-week to an average of $ 303. Cowen calls the rate-price climate “erratic.”
In fact, airline executives are warning investors to prepare for an uneven recovery. United recently said in a document that the company is evaluating and canceling flights on a 60-day basis and expects the lawsuit to be “dropped until a widely accepted treatment and / or vaccine for Covid-19 is available.” United expects capacity to drop 75% and 65% in July and August, respectively, and does not expect recovery “to follow a linear path, as illustrated by recent reserve and demand trends.”
Airlines are deep-cleaning planes, requiring face masks for passengers and crew, and imposing a variety of social distancing measures. But airlines like American are now filling their seats to capacity. And while face masks are required on board, the rules don’t always seem to apply. Images of masked passengers on planes continue to appear on Twitter, including on a July 9 flight in southwest Raleigh-Durham to Denver.
Southwest says it requires customers to wear face masks “at all times while traveling,” aside from temporary situations. The airline said it could not comment on the Twitter post, citing privacy concerns.
It is unclear whether flying is less safe than other modes of transportation. Expert testimony before Congress recently portrayed a mixed image.
However, a recent “epidemiological investigation” in an academic journal, Travel medicine and infectious diseases, indicated that the risks are low. The researchers studied a Covid-19 outbreak that occurred on a flight from Singapore to Hangzhou, China, between January 24 and February 15, 2020. Of the 335 passengers on board, a total of 16 patients were diagnosed with COVID -19, with an overall “attack rate” of 4.8%. But the attack rate was much higher among passengers who had drifted away from Wuhan, the original epicenter of the outbreak. Only one passenger with no epidemiological history of exposure before boarding the plane developed Covid-19, according to a synopsis of the study. In addition, during the flight, that passenger sat about four infected Wuhan passengers for an hour and “did not wear his face mask correctly during the flight,” investigators reported.
Their conclusion: The Covid-19 transmission may have occurred, but most flight-based cases cannot be attributed to the on-board transmission.
Write to Daren Fonda at [email protected]
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