Airline stocks snap losing streak as JetBlue deems demand has already bottomed

JetBlue results miss but shares rally on outlook, while Spirit Airlines stock sinks after disappointing results and stock offering


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Airline stocks rose Thursday for the first time in over a week, after JetBlue Airways Corp. reported a wider-than-expected loss but fueled investor optimism by saying travel demand appeared to bottom weeks ago.

The U.S. Global Jets exchange-traded fund
JETS,
+0.70%

rose 0.7% to post the first gain in six sessions. The ETF had tumbled 20.8% amid a 5-day losing streak through Wednesday, while the S&P 500 index
SPX,
+1.15%

had slipped 3.1% over the same time.

Don’t miss: Airline stocks suffer broad selloff as American, Delta fall to new COVID-19 lows.

JetBlue’s stock
JBLU,
+1.99%

pared early gains of as much as 7.0% but managed to close up 2.0%, after slumping 21% over the past five days. The air carrier reported a wider-than-expected loss on revenue that fell more than expected, amid “deep-capacity cuts” in March, but the cash-burn and demand outlook since then gave investors something to cheer about.

“[W]e believe demand bottomed out in mid-April,” said Chief Operating Officer Joanne Geraghty in the post-earnings conference call with analysts, according to a FactSet transcript. “We are starting to see some very small improvements in bookings,” she said, adding that it was still “too early to tell if there is a permanent change in the trend.”

Regarding cash burn, Chief Financial Officer Steve Priest said on the call that it has been reduced to an average of about $12 million a day in April from an average of $18 million a day in the second half of March, as expenses have been cut and capital expenditure plans have been revised, including negotiating a deal to take fewer aircraft from Airbus SE
AIR,
+3.81%

EADSY,
+5.90%

than previously planned.

“As we head into May, we expect that cash burn to be just under $10 million per day,” Priest said. “We expect to see further improvements in the third quarter, and our cash burn to range between $7 million and $9 million per day.”

He stressed that the cash-burn outlook doesn’t include the support from the Coronavirus Aid, Relief and Economic Security (CARES) Act, which approximately equates to about $5 million per day of support through the end of the third quarter.

JetBlue’s upbeat outlook helped support a bounce in American Airlines Group Inc.’s stock
AAL,
+3.13%

, which advanced 3.1% after plunging 26.8% over the previous five sessions to close Wednesday at a record low.

Shares of Delta Air Lines Inc.
DAL,
+3.23%

hiked up 3.2% after closing Wednesday at a near seven-year low and Southwest Airlines Co.
LUV,
+2.08%

bounced 2.1% off a six-year low.

Elsewhere, shares of United Airlines Holdings Inc.
UAL,
-0.69%

reversed an intraday gain of as much as 6.7% to close down 0.7%, while Alaska Air Group Inc.
ALK,
+1.50%

rose 1.5%, Hawaiian Airlines parent Hawaiian Holdings Inc.
HA,
+0.94%

gained 0.9% and Mesa Air Group Inc.
MESA,
+3.94%

advanced 3.9%.

Also read: Frontier Airlines will drop social-distancing fee after wave of criticism.

See related: Air France-KLM says virus hit will be worse in 2Q.

Meanwhile, Spirit Airlines Inc.’s stock
SAVE,
-9.00%

bucked the sector’s rally, as it sank 9.0%, and has now plummeted 31.7% amid a six-day losing streak.

Late Wednesday, the budget carrier reported a wider-than-expected loss and sales that fell well below analyst projections, as demand took a dive in mid-March.

“We’ve reduced April capacity by approximately 75% versus our original plan and for May and June, we’ve cut our schedule by about 95%,” said Chief Commercial Officer Matthew Klein, according to a FactSet transcript of the analyst call. “However, based on anticipated demand trends, we are looking to add a little back to June such that it is only a 90% cut.”

In comparison, JetBlue said it expects second-quarter capacity to be down 80%.

Separately, Spirit said it launched a public offering of 12 million shares of common stock and $150 million in convertible senior notes due 2025. The common stock offering represents 17.5% of the shares outstanding as of April 29.

Cowen analyst Helane Becker said she expects the stock offering to price after Thursday’s close. She reiterated her outperform rating, saying Spirit’s liquidity profile is “solid,” and will be further bolstered through the stock and convertible note offerings.

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