Airline Stocks: What’s Keeping Them From Taking Off?

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I fly all over the world, so I know all about the factors that can influence whether a flight is delayed or canceled. Weather tends to be the biggest offender, but now when taking a trip to or from Hong Kong, there’s an even bigger one.

airline stocks

This hasn’t been covered much by the U.S. media, but since June, 1.7 million protestors took to the streets of Hong Kong over proposed amendments to its extradition law. This law would allow someone in Hong Kong to face trial in mainland China.

More recently, protestors took the fight from the streets to the air, so to speak.

For about the last two weeks, the airline industry was put on hold when thousands of protesters gathered across Hong Kong’s international airport. This hindered the usual 1,100 daily flights to and from Hong Kong, and has been affecting top performing airlines, such as American Airlines Group Inc. (NASDAQ:AAL) and Southwest Airlines Co. (NYSE:LUV).

On August 12, for example, around 200 arriving and departing flights were cancelled. Protestors also took to warning away tourists and travelers who were already occupying the premises. And then, last Monday, nearly 150 departing flights were cancelled by airport authorities.

Hong Kong has since suspended the extradition bill.  And, according to CNN, flights are to resume tomorrow. Hopefully, this is a sign that the Hong Kong protests will resolve without a military presence soon, but it is an event I will continue to watch very carefully to see how it unfolds.

But the Hong Kong protests aren’t the only things hurting the airlines right now. Problems at The Boeing Company (NYSE:BA) have been weighing on the sector, too. As you may recall, the company’s 737 MAX airplanes were grounded in the wake of two fatal crashes involving the aircraft. Since then, it has been determined that a software glitch was partly responsible for the two crashes.

As a result, many of the airlines that use the 737 MAX airplanes have been forced to deal with the grounding, too.

Because many 737 MAX planes are owned by AAL, United Airlines Holding, Inc. (NASDAQ:UAL) and LUV, they’ve had to cancel thousands of flights due to the grounding. Southwest Airlines, for example, owns 34 of the MAX planes, and was forced to cancel nearly 20,000 flights.

This caused Southwest’s second-quarter earnings report to suffer. While LUV did manage to post an earnings beat, quarterly operating income turned negative by $175 million, and Southwest CEO Gary C. Kelly explicitly mentioned the groundings as the culprit.

Since the grounding, Boeing has also had its fair share of struggles this year, but I’m still a big believer in the company’s long-term growth.

The reality is that the 737 MAX airplane is the most fuel-efficient plane out there, and it has no competitors, so its aircraft will remain in demand. And while the buying pressure has tapered off a bit, I expect it to increase after Boeing resolves these problems.

In the meantime, the company continues to reward shareholders, as it plans to pay a quarterly dividend of $2.05 per share on September 6. That makes for a nice, 2.11% forward dividend yield – more than you’d get even from a 30-year Treasury bond these days! So, BA still is a great dividend stock.The good news is, Boeing’s already got the fix, which is basically better pilot training on how to turn off the automatic trim. The U.S. pilots are already well-trained; now they just have to make sure pilots internationally are operating at the same caliber. They might have to rename the 737 Max just for PR reasons, but Boeing is going to be fine.

And stocks like Boeing will be especially good for my Platinum Growth Club subscribers, as I recommend many dividend growth stocks to subscribers.

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