The fear of a recession on the horizon is understandably coaxing investors to avoid “quite cyclical airlines,” the expected contraction in 2023 is not as negative for airlines as previous market downturns.
Overall, equity analyst Brandon R. Oglenski advised that a potential recession in 2023 is likely to be less negative for airlines than some bearish analyses project. Using 2009 as a comparison, his team expects “most airlines as likely remaining profitable at least on an EBITDAR basis,” bolstered by slower deliveries from Airbus and Boeing to lessen capital spending issues.
“Beyond the potential earnings impact from a slower economy, we still see the US airline industry benefiting from long-term travel demand growth, converging input costs (pilot wages as an example) and near-term constraints on capacity expansion which should support continued favorable yield outcomes,” Oglenski wrote. “Assuming the current earnings outlook actually proves achievable, we find many airline stocks to be trading below historical levels.”
In his analysis, Delta Air Lines (NYSE:DAL), United Airlines (UAL), and American Airlines (AAL) are likely to take the biggest hit in terms of EBITDAR under a recessionary scenario. Frontier (ULCC), Allegiant (ALGT), and Sun Country (SNCY) are slated to feel the smallest impact. All airlines analyzed are projected to remain profitable on an EBITDAR basis.
Read more on the impact of increasing fuel costs on air carriers.