You might not have seen the latest round of bad news for airlines.

But you should have.

It’s not good. Not for the airlines. Not for their passengers. Not for their investors.

I’m really not sure why this isn’t bigger news. Perhaps society has become too obsessed with politics and artificial intelligence to care about anything else.

What I do know for sure is that, here at Wide Moat Research, we want to keep you as informed as possible about your investment health. So, here’s what you need to know…

Late last week, United Airlines (UAL) flight attendants voted overwhelmingly – by more than 99% – to go on strike if their pay-related demands aren’t met. Since, again, the major outlets don’t seem concerned about this, here are the details from Fox31:

United flight attendants say they want a double-digit base pay increase, pay for all time they work, including on the ground, retroactive pay, and schedule and retirement flexibility.

Ken Diaz, president of the United chapter of the Association of Flight Attendants union, assured members that the “strike vote shows we’re ready to do whatever it takes to reach the contract we deserve” since “planes don’t take off without us.” Though the article goes on to assure that:

… this does not mean that flight attendants are walking off the job immediately. The union needs to request a release from the National Mediation Board, and they would have a 30-day "cooling off period" before a strike begins.

That’s probably why the mainstream media has brushed this off. “Eh,” they seem to say. “It’s one possible strike by one airline that won’t affect anyone until next quarter, if it affects anyone at all.”

In which case, I very much disagree.

Flight Attendants Are Just the Latest Straw for Airlines

I learned about the flight attendant drama after The Washington Post published an article on some who were “barely surviving.” The August 26th piece detailed how:

New flight attendants… learn that although their work has been deemed "essential" to the transportation infrastructure, it’s hard to stay afloat. A complicated pay structure that prioritizes hours in the air and entry-level wages that are on par with service industry jobs make it difficult for many to turn the job into a career….

Most new flight attendants work "on reserve," spending days waiting to be assigned flights. It’s common for them to take side jobs – bartenders, semi-truck drivers, makeup artists, church musicians. Some say they are struggling to feed their families and are living out of their cars.

Incidentally and inexplicably, I couldn’t find any follow-up story on the site about the potential strike.

In all fairness, my regular readers know I don’t normally write about airlines either. It’s not my area of expertise.

But safe investing is. And that includes avoiding risky opportunities just as much as finding rewarding ones.

In which case, it must be said that the airlines are struggling. They have been ever since the 2020 shutdowns. With only emergency or otherwise “essential” personnel to shuttle around, they lost billions and billions and billions of dollars worldwide.

It was an industry disaster the likes of which had not been seen before. Moreover, the $25 billion in bailout incentives Congress granted to U.S. airlines – a combination of cash, loan guarantees, and other financial assistance – only did so much when they had to stretch it all the way through 2021 as well.

Forget the friendly skies. Those wouldn’t come back until 2022.

The Story Will Continue

By the time 2021 was over, Americans were done with being shut down. They had pent-up cash and pent-up wanderlust, and they unleashed both in a big way, benefiting airlines all over.

Unfortunately, by that point, the industry was facing a range of additional tailwinds, including:

  • Raised wages for pilots who were in sudden shortage (thanks to early retirement incentives from the previous two years)

  • Much higher oil prices, which made jet fuel more expensive

  • “Operating issues,” from overall staff shortages to “bad weather” and “technological glitches” (or so they said) that led to a whopping number of cancellations, especially in December 2022

2023, however, seemed to be a smoother ride for airlines, at least when it came to that third problem. And the number of passengers continued to rise into 2024, hitting record numbers more than once.

Take this past holiday weekend. While I don’t have the exact numbers yet, the TSA projected a whopping 17 million individual screenings – about 8% over 2023 – going into Labor Day.

That’s a lot of ticket sales, to say the least, and U.S. carriers are getting to keep some of that. United’s Q2-24 total operating revenue, for instance, was $15 billion, up 5.7% year-over-year.

But again, that’s not the end of the story. Because on top of all the issues I’ve already mentioned, we also have to consider the industry’s ongoing Boeing (BA) troubles. You know, where parts and pieces are falling off of airplanes due to cheap materials and rushed work.

Now, the beleaguered company does have a new CEO, Robert “Kelly” Ortberg, who could turn things around. United CEO Scott Kirby certainly thinks so, telling the LinkedIn community last month that he has “a renewed confidence” in Boeing.

Yet we can’t forget that United has 484 unfilled orders with Boeing. That delayed fulfillment has already impacted its growth capabilities this year. Moreover, if Ortberg truly wants to turn Boeing around, that means more time and money spent on bringing planes to market.

Which means more delays for the airline industry, not less – along with higher prices from here.

Just Because Airlines Are Cheap Does Not Make Them Bargains

I know the airline industry is woefully underperforming the S&P 500… enough so perhaps to tempt some value investors.

To break that chart down, that top line is the S&P 500, up 92.54% in the past five years as of yesterday. Meanwhile, the

  • Purple line is Delta (DAL) – down 26.56%

  • Pink line is Southwest (LUV) – down 44.72%

  • Lighter blue line is United – down 47.76%

  • Orange line is American (AAL) – down 59.64%

  • Yellow line is JetBlue (JBLU) – down 70.67%

  • Green line – that’s practically off the chart on the downside – is Spirit (SAVE)… down 93.13%

That’s cheap, comparatively speaking. But I don’t expect airlines to truly recover anytime soon, especially considering the new flight attendant strike threat. My guess is that United will cede to demands and increase its employees’ pay, opportunities, and benefits in order to keep them happy.

And working.

That, while wonderful for flight attendants, will mean more overhead… which it will almost certainly pass on to passengers in the form of higher costs. Which won’t be good for anyone involved, considering how choosey customers are growing about what they buy.

As for the other airlines, you’d better believe their flight attendants are watching this whole affair closely. If United’s staff succeeds, they’ll push for better benefits as well.

In short, I see more gray clouds for these companies – too many and for too long to say they’re worth the buy. Don’t be fooled by how busy they might be… or by how the mainstream financial media has deemed this potential strike a non-issue.

Airlines are not where I want to park my cash anytime soon. Especially not when there are so many better places to be.

Regards,

Brad Thomas
Editor, Wide Moat Daily