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Grayson Disrupts Airline Operations, What’s on the Radar?

Zacks

Airline operations were severely disrupted on Jan 4 as Winter Storm Grayson wreaked havoc. The storm has battered the East Coast, causing heavy snowfall accompanied by wind gusts in excess of 50 mph in the affected areas.

Flight Cancellations Mount

With the storm disrupting normal life, it is of little wonder that travel plans were thrown haywire as major airline operators had to cancel multiple flights. The severity of the storm can be realized from the fact that the U.S. carriers cancelled more than 4,000 flights, yesterday. Cancellations on Thursday hit operations severely at major airports in Boston, Newark and the New York City.

We note that operations at United Continental Holdings UAL — the parent company of United Airlines — were hit the hardest among legacy carriers as Newark is a major hub for this Zacks Rank #3 (Hold) company. This Chicago-based carrier had to call off more than 560 flights on Jan 4 due to the Grayson-induced disruptions. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


Other airline players like American Airlines AAL, Delta Air Lines DAL, JetBlue Airways JBLU, Spirit Airlines SAVE and Southwest Airlines LUV were not spared of the miseries either and had to call of multiple flights resulting in significant loss of revenues.

Apart from the cancellations, many flights were delayed causing harassments to passengers. In fact, operations were temporarily suspended at New York's Kennedy International airport due to the recent natural calamity. With high costs (labor plus fuel) impeding bottom-line growth of carriers, multiple flight cancellations caused by Grayson has hurt their top lines.

Woes to Continue

What is worse is that the woes are likely to continue for the next few days as well, resulting in more flight cancellations and revenue losses for airline operators. In fact, more than 1,000 flights into/out of the United States are expected to be cancelled today.

In fact, icy cold wind is expected to blow over the weekend in the affected areas confining people to their homes and disrupting travel plans. Apart from the damaging winds, severe power outages are anticipated in some areas along the East Coast.

To compensate for the harassment of passengers, who had planned to travel in the affected period, most carriers including United Continental, American Airlines and Alaska Air Group ALK are offering travel waivers for the concerned passengers.

Natural Calamities Hurt Airlines Significantly

This is not the first time that the sector participants have been laid low by a winter storm. Earlier, such acts of nature have thrown the schedules of carriers out of gear, causing multiple flight cancellations.

The back-to-back hurricanes (Harvey, Irma and Maria) dented airline operations significantly, hurting results in the third quarter of 2017. Prior to that, winter storm Stella had crippled airline operations considerably by impeding travel. In 2016, Hurricane Matthew had spelt doom for airlines, causing extensive damage.

Will Grayson Dampen Airlines Recovery?

The emergence of Grayson comes at a time when things are looking up for airline stocks after being laid low for most part of 2017. Moreover, the new tax law is expected to be a godsend for airlines.

The bullish scenario is reflected in the fact that the Zacks Airline industry has outperformed the S&P 500 Index over the last three months. The industry has rallied 8.7% compared with the S&P 500’s 6.8% gain in the same period.

Given this backdrop, it remains to be seen whether winter storm Grayson hurts revenues significantly and spoils the results of the affected carriers in the first quarter of 2018.

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