The fact that the Zacks Airline industry declined 2.5% in the first quarter of the year highlights the fact the sector is not bereft of headwinds, despite positives such as increasing financial prosperity and the new tax law.
Let’s take a look at the factors responsible for the disappointing price performance.
Weather-Related Disruptions Rule
Stocks in the airline space have been hit repeatedly by inclement weather this year. Weather-related disruptions cripple airline operations, leading to multiple flights being cancelled. Apart from Winter Storm Grayson in January, successive Nor’easters in March disrupted airline operations significantly due to multiple flight cancellations.
In fact, the month of March has reportedly seen more than 10,000 flights being called off due to successive Nor’easters. Notably, this was the worst March in five years in terms of flight cancellations.
The increase in the number of flight cancellations resulted in significant revenue loss for airline operators and this is likely to dent the top-line performance of carriers in the first quarter.
According to the Air Travel Consumer Report unveiled by the U.S. Department of Transportation, the number of cancellations increased during January 2018. In fact, the rate of cancelled scheduled domestic flights increased to 3% from 2% and 1.2% in January and December 2017, respectively.
Public Relations Fiascoes
Carriers such as United Continental Holdings, Inc. (UAL) and Southwest Airlines Co. (LUV) have been hurt by issues pertaining to animals on their flights. In February, an unfortunate child-related incident occurred on a Southwest Airlines flight (Phoenix-to-Portland) when a dog bit the girl on the plane. Southwest started reviewing its policy pertaining to onboard service animals, even before the occurrence of incident.
The dog fiasco at one of the flights of United Airlines — United Continental’s subsidiary — earned the carrier rebuke from all corners. In fact, the incident which resulted in the tragic death of a black French bulldog puppy on one of its flights on Mar 12, 2018, did not go unnoticed by lawmakers in the United States.