Airlines And Hotels Struggle As Disney Shakes Up Structure

Key Takeaways:

  • Airlines next on runway in earnings season, with United Thursday
  • Most hopes for industry improvement rest on vaccine or treatment
  • Disney grabs spotlight with recent layoffs, reorganization

Been on a plane lately?

If, like many of us, the answer is no, you’re probably part of the reason the airline and travel industry’s Q3 earnings prospects remain grounded.

Actually, “grounded” isn’t the best word for the results analysts expect from airlines. An expression that comes to mind, unfortunately, is “nose dive.”

Airline earnings are expected to plunge an incredible 313% year-over-year in Q3, according to research firm FactSet. That’s about the worst earnings projection for any industry sub-sector, dwarfing even projected losses in the lackluster Energy complex.

Travel isn’t all about the airlines, of course. Digging deeper into sub-sector performance, analysts see the Hotels, Restaurants, and Leisure sub-sector falling off a cliff, with earnings down 132% from a year ago.

All this is bad news for many non-airline travel companies—including Hilton (HLT), Marriott (MAR) and other big hotel chains, but one stands out. Walt Disney (DIS) recently announced it would lay off 28,000, many from its theme parks, as COVID troubles persist. Earlier this week, the house built by the mouse was back in the news, announcing a reorganization expected to give more priority to its streaming division.

While not every vacation is to the Magic Kingdom, problems for DIS often set the tone for the entire travel industry. Think of all those family holiday vacations people typically take—theme parks, waterparks, packed beaches, and cruises—that got canceled this year.

And that’s just the leisure side of travel. All the business meetings on Zoom (ZM) also could spell trouble for airlines and hotels.

How Can Airlines Gain Altitude?

There are some early indications things might improve later this year and next for some of the airline and cruise companies. At this point, though, Q3’s in the spotlight. and the raw numbers don’t look pretty. The number of passengers passing through Transportation Security Administration (TSA) checkpoints at the end of Q3 was about 30% the rate of a year earlier on a bad day, and 35% on a “good” day.

Whether that can tick higher depends not only on the course of COVID-19, but also on Washington. Both United Airlines (UAL) and American Airlines (AAL) have said they’d move forward with furloughs affecting a combined 32,000 employees. That could change if the White House and Congress act on an aid package for the industry, something that remains up in the air (pun intended) as this week moves along.

Airline earnings began their takeoff run Tuesday with Delta (DAL), and if DAL’s results—a worse-than-expected loss of $3.30 per share on revenue of $3.06 billion (versus year-ago revenue of $12.56 billion)—are reflective of the rest of the industry, there could be a lot more grief ahead (see chart below).

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