“There’s buy low, and then there’s bury. Airlines are buried.” – Jeff


Hey there carnivores,

Markets were up on Monday, with tech stocks carrying the rally. 

And today we’re talking about the airline industry’s nosedive.

Keep raging,

Jeff & Jason

Crash Landing

After Warren Buffett announced Sunday that he eighty-sixed airlines, things went from bad to worse for our winged friends. For starters, all four major airline shares fell, likely, thanks to harsh words from the Oracle. 

Look what you did! 

The four major US airlines saw losses of 5% or more, with American Airlines dropping 7%, Delta falling 6.4%, Southwest sinking by 5.7%, and United losing 5% on the day. Dropping and/or falling are two words you don’t want next to your airline in any capacity. 

United had itself an exceptionally rough Monday, even by Monday standards. It announced that nearly one-third of its more than 12k+ pilots will be without jobs by October 1. United’s chief pilot (the actual head pilot, we didn’t know they ranked them, either) said those numbers could be even higher if summer travel doesn’t make one hell of a comeback. 

Not to mention more than 30% of management jobs will be cut in October… since the airlines promised the government to keep employees on until September.

What’s worse? This comes after UA received approximately $5B in bailout money from Uncle Sam.

Sh*t flows down-er-uphill

It’s not just the airlines that are feeling the heat either. Somebody’s got to make all those planes that no one’s buying. *GE has entered the chat*. General Electric which makes engines for Airbus and Boeing, started its week off on the wrong foot.

GE, yesterday, said that it will layoff more than 25% of its aviation workforce over the next few months. The cut of more than 13k jobs comes just a few months after the struggling conglomerate chopped 10% of its aviation workers in March as part of a mission to reduce more than $1B in costs from the business. 

If you recall, the engine-maker last week announced its profits had fallen 40% in Q1, so it sounds like that whole cost reduction thing better happen sooner rather than later. 

Cooler Commentary

Yeah, it’s not looking great for US airlines and their manufacturers. The good news, especially if you like endless buffets and overpriced sunscreen, is that cruises could be back soon. So some industries are willing to adapt and overcome, even if they infect the entire world in the process. 

Carnival announced it would be resuming operations as early as August 1st in Florida and Texas. OK, that checks out. It’s still extending cancellations of many of its North American and European routes. But at least they’re trying. 

It’s promising to see some of these corona-ravaged travel services start to see a light at the end of the tunnel. I think.

☑️ You gotta spend money to make money.

The US Treasury will set a new record *bells and whistles go off* as it is estimated to borrow $3T this quarter. That’s a lot of $1,200 checks. Thanks to ‘rona boi, the Treasury has spent Brinks-trucks full of funds to keep the economy going as social distancing and stay at home orders brought the economy to a standstill. 

There’s an additional stimulus package in the, excuse my phrasing, works, to help assist the 30M+ Americans on the unemployment line thanks to furloughs and layoffs. In fact, California just became the first state to ask the federal government for money to pay its unemployed.

The current year’s budget deficit is at $744B, but it’s expected that Q3 will see an additional loss of $677B. The US national debt clock is now nearing $25T, while US GDP stands at $21.38T. 

☑️ Re-Failure.

J Crew has become the first major retailer to file for bankruptcy thanks to COVID-19. The preppy clothing brand reached a deal with shareholders to convert $1.65B of its debt to equity and secured $400M in financing from existing lenders... presumably in exchange for salmon-colored shorts with little anchors on them. 

It was already struggling in the sales and debt departments, as the retailer received criticism that it lost touch with its audience way before its audience wasn’t allowed to touch each other. Apparently a nautical themed sweater for $90 doesn’t slap the way it used to. 

The good news? J Crew isn’t alone. Other struggling retailers, such as Neiman Marcus and J.C. Penney, may be next, as Neiman is supposedly looking for financing and JCP missed an interest payment. Whoops! 

☑️ Take a seat. How much does safety matter to you? Frontier is betting $39.

Frontier Airlines is allowing customers to purchase the middle seat next to them, ensuring that it stays unoccupied to help out with social distancing… all for the low, low price (range) of $39 to $89. 

Umm, wouldn’t I still need to straddle the person in the aisle seat to get to the bathroom? I digress.

The budget airline is also implementing other COVID related policies, such as mandatory face coverings, temperature checks, and not letting anyone on the flight that has coronavirus. Ok, the last one checks out.

Other airlines, such as American and Delta, are blocking middle seats for booking, but would book them if passengers need them… which defeats the purpose entirely.

☑️ Packing meat.

Tyson Foods fell 10% yesterday, as it missed big on earnings thanks to the negative impact of the coronavirus pandemic. EPS came in at 77 cents, a far cry from Wall Street’s estimates of $1.04, while revenue fell $50M short of the projected $10.96B. 

And the company expects volume to decline in Q2 as people continue to social distance and eat at home.

Hundreds of Tyson employees have contracted the virus, forcing numerous slaughterhouses and plants to slow production or shut down. Tyson’s chickens, on the other hand, have been very pleased by this recent development. 

In an effort to keep the business afloat, the meat maker has secured a $1.5B term loan facility. 

Author: Jeff Bishop

One of the best traders anywhere, over the past 20 years Jeff’s made multi-millions trading stocks, ETFs, and options. He is renowned as an incredible trader with a deep insight and a sensitive pulse on the markets and the economy. Jeff Bishop is CEO and Co-Founder of RagingBull.com.

Even greater than his prowess as a trader is his skill and passion in teaching others how to trade and rake in profits while managing risk.

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