It continues to be a difficult time for airlines and their shareholders. Staff shortages, scheduling problems, and canceled flights made headlines around the world this summer as carriers struggled to keep pace with a surge of travel demand. Further, airlines have been grappling with much higher fuel costs this year and a mountain of debt that they accumulated during the Covid-19 crisis. The International Air Transport Association estimates that airlines globally took on $340 billion of debt over the past two years. While all major carriers are feeling the strains, a few have unique problems that are making their situation worse than others and further depressing their share prices. Here are three airline stocks to sell before things get any worse.
Airline Stocks to Sell Now: Lufthansa (DLAKY)
While most U.S.-based airlines are struggling with a shortage of pilots to fly their planes, Germany’s flagship carrier, Lufthansa (ETR:LHA), has been dealing with a much bigger problem when it comes to pilots: a labor strike.
The airline recently had to cancel 800 flights at its hubs in Frankfurt and Munich after more than 5,000 of its pilots staged a 24-hour walkout. The pilots and their union took the job action because they are not satisfied with the direction that contract negotiations with the airline’s management team has been going.
The pilots have been demanding a 5.5% pay raise this year and automatic wage increases tied to the inflation rate going forward, as well as better pay for entry-level pilots. Lufthansa has balked at the demands, saying the union’s proposal would increase its staff costs by 40% at a time when the airline is struggling with high fuel costs and $11 billion of debt that it took on during the pandemic.
While a second pilots strike that was planned to last two-days was averted after management came back with a new offer, the proposal still needs to be voted on by the rank-and-file pilots. In 2022, Lufthansa’s shares traded on America’s over-the-counter market are down 10%.
Discount airline JetBlue (NASDAQ:JBLU) announced this past July that it would spend $3.8 billion to acquire fellow low-cost carrier Spirit Airlines (NYSE:SAVE) in order to become the fifth-largest airline in America.
While JetBlue has done its best to herald the acquisition as the best thing to happen to air travel since the advent of in-flight movies, investors’ reaction to the deal has been largely indifferent. Since the purchase of Spirit Airlines was announced in late July, JBLU stock has declined 4%. And in 2022, JetBlue’s stock has dropped 43%.
If approved, the acquisition of Spirit is expected to close in 2024. However, there are no guarantees that the tie-up will be approved by regulators, which, in this case, includes the U.S. Justice Department.
In fact, this is not the first time that JetBlue has taken a run at Spirit Airlines. Spirit has rejected several previous takeover bids from JetBlue, saying that the deal isn’t likely to be approved by regulators. The big issue is JetBlue’s alliance with American Airlines (NASDAQ:AAL) in the northeast of the U.S. Given that partnership, regulators might look at JetBlue’s acquisition of Spirit as being bad for competition and consumers.
Allegiant Travel Company (ALGT)
Allegiant Travel Co. (NASDAQ:ALGT), also known as Allegiant Air, specializes in flying people who live in northern U.S. states to warm destinations, primarily during the cold, winter months.
An ultra-low-cost carrier, Allegiant Air’s business was devastated by the pandemic, and it has been struggling to recover this year. So far in 2022, ALGT stock has declined nearly 50%. The stock is nearly 55% below its 52-week high of $215.48 per share.
In its most recent earnings report, Allegiant stated that its operating cost per available seat mile, excluding fuel, rose 42% year-over-year to $6.94. Fuel costs per gallon grew in excess of 100% to $4.33 last quarter, putting a serious strain on the company’s finances.
Going forward, there is lingering uncertainty about the impact of Covid-19 next winter. Any resurgence of the respiratory disease during the peak winter travel season could prove to be another blow to Allegiant Air.
The recent news that Allegiant Executive Vice-President Robert Wilson sold 1,800 shares of ALGT stock at an average price of $101.15 a share didn’t inspire confidence among investors.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.