The airline industry has been under pressure since the pandemic due to travel restrictions, while staffing shortages have made it difficult for airlines to recover from other routine issues. Flight delays and cancellations increased significantly last year, costing U.S. carriers more than $100 million, disrupting customers’ experience.

The industry is trying to get ahead of the problem with massive hiring, timely planning for bad weather, conservative scheduling, and better technology for customers and staff. However, similar risks might persist as the peak travel season gets underway. Carriers including Spirit Airlines, Inc (SAVE) and JetBlue Airways (JBLU) have already pared back flying this season. 

Given the ongoing disruptions in the airline industry, we think downgraded stocks, JetBlue Airways Corporation (JBLU) and SkyWest, Inc. (SKYW), might be best avoided.

JetBlue Airways Corporation (JBLU)

JBLU is a travel company that provides air transportation services through its segments, including Domestic, Caribbean, & Latin America. 

JBLU was recently downgraded by JPMorgan Chase & Co. analysts from an “overweight” rating to an “underweight” rating. Several other brokerages also downgraded the stock and revised their price targets.

In April, Spirit Airlines, Inc. announced that its Board of Directors is to begin a discussion regarding the JBLU’s proposal to acquire SAVE in an all-cash transaction for a $33.00 per share deal, implying a fully diluted equity value of $3.6 billion and providing full and certain value to Spirit shareholders. However, SAVE noted that there is no assurance that the discussions will result in a transaction.

For the fiscal first quarter ended March 31, 2022, JBLU’s operating expenses increased 104.8% year-over-year to $2.10 billion. Net loss for the period increased 3.2% from the prior-year quarter to $255 million, while its loss per share came in at $0.79, up 1.3% year-over-year.

The consensus EPS estimate is expected to come in at a negative of $0.09 for the fiscal second quarter ended June 2022, while the EPS estimate for the fiscal year ended December 2022 is at a negative $0.53.

The stock has declined 44.7% over the past year and 27.3% over the past nine months to close the last trading session at $11.01.

JBLU’s POWR Ratings reflect this bleak outlook. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

JBLU has a Sentiment grade of F and a Growth and Stability grade of D. In the 31-stock, F-rated Airlines industry, it is ranked #21. Click here to see the additional POWR Ratings for JBLU (Momentum and Quality).

SkyWest, Inc. (SKYW)

SKYW operates a regional airline in the United States through its SkyWest Airlines; and SkyWest Leasing segments.

Raymond James downgraded shares of SKYW from an outperform rating to a market perform rating.

SKYW’s operating expenses increased 31.4% year-over-year to $71.60 million for the fiscal first quarter ended March 31, 2022. SKYW’s operating income decreased 35.6% year-over-year to $52.05 million. Net income came in at $17.73 million, down 50.6% from the previous-year quarter, while its EPS was $0.35, reflecting a year-over-year decrease of 50.7%.

Street EPS estimate for the fiscal second quarter ended June 2022 of $0.52 reflects a 57.4% year-over-year decrease, while its EPS is expected to decrease 74.2% from the year-ago value to $0.89 in the fiscal year ending December 2022.

The stock has declined 42.8% over the past year to close the last trading session at $29.15. It has slumped 32.3% over the past six months.

Under the POWR Ratings, SKYW has been accorded a D rating for Stability. It is ranked #3 in the Airlines industry.

To see the additional POWR Ratings for Value, Quality, Growth, Momentum, and Sentiment for SKYW, click here.

JBLU shares were trading at $11.18 per share on Monday morning, up $0.17 (+1.54%). Year-to-date, JBLU has declined -21.49%, versus a -12.53% rise in the benchmark S&P 500 index during the same period.

About the Author: Komal Bhattar

Komal's passion for the stock market and financial analysis led her to pursue investment research as a career. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities. More...

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