The recent upsurge in oil price is not a favorable development for airline stocks, especially as far as their bottom-line growth is concerned. This is because fuel expenses represent one of the most significant input costs for aviation. The oil price spike prompted many airline stocks to increase their respective estimates for first-quarter fuel price per gallon.
The latest to be included in this list is Allegiant Travel Company ALGT. ALGT, currently carrying a Zacks Rank #5 (Strong Sell), expects fuel price per gallon to be $3.05 in the first quarter of 2022 (earlier guidance was $2.67).
Like other carriers, Allegiant lowered its capacity growth forecast for the first quarter due to the oil price rise. Available seat miles (a measure of capacity), both for scheduled service and system wide, is expected to increase in the 17-19% range from the first-quarter 2019 actuals (earlier guidance was for an increase in the 19-23% range).
Due to the cut in the capacity growth forecast, ALGT increased the lower limit for first-quarter 2022 non-fuel unit cost growth projection. The metric is now expected to rise in the 3-5% range from first-quarter 2019 actuals (earlier guidance was an increase of 1-5%).
Per Gregory Anderson, executive vice president and chief financial officer of Allegiant, “Due predominantly to the volatile fuel environment as well as some staffing challenges, we expect to reduce planned capacity by roughly ten percent for the second quarter. We will continue to manage capacity to maximize profitability.” Average fuel price per gallon for February is estimated to be $2.92.
However, owing to strong air-travel demand, the picture with respect to revenues is bright. Per Drew Wells, senior vice president, revenue, “After a slow start to the quarter, attributable to the Omicron variant, we saw a significant step-up in leisure demand beginning mid-February and persisting into March. We finished February with a load factor (% of seats filled with passengers) of 77.8%, a more than eight-point improvement over January. Load factor during the month of March is currently trending above levels observed in 2019, with several weeks exceeding 90 percent booked loads, marking the first time we’ve seen loads at this level since the onset of the pandemic”.
Management now expects first-quarter 2022 operating revenues to improve in the 7.5-9% band from first-quarter 2019 actuals (earlier guidance was an increase in the 5-9% band).
Given this changing scenario, let’s briefly recapitulate the revised first-quarter projections of some other carriers.
American Airlines AAL now expects first-quarter revenues to decline roughly 17% from first-quarter 2019 actuals, better than its previous outlook of a 20-22% fall. Like other carriers, AAL decreased its first-quarter capacity growth outlook. The metric is now expected to be down 10-12% compared with the 8-10% decline anticipated earlier.
First-quarter non-fuel unit cost is now expected to be up approximately 11-13% compared with the earlier projection of an approximate 8-10% increase. Fuel price per gallon is now expected in the $2.73-$2.78 range compared with the $2.41-$2.46 band, anticipated earlier.
Like other airlines, JetBlue Airways JBLU raised its revenue guidance but trimmed its capacity outlook for first-quarter 2022 due to increasing oil price. JBLU now expects revenues to decline in the 6-9% band compared with an 11-16% decrease, expected earlier.
Capacity is expected to dip 1% from the first-quarter 2019 actuals. The same is compared with the earlier expectation of a range of 1% decline to an increase of up to 2%.
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