Survey: Do Investors Still Trust Airlines?

Airline stocks are down sharply on Tuesday following a downgrade by Raymond James. Following the downgrade, Morgan Stanley released its Question of the Week report on airlines, and this week’s question focused on whether or not investors still have faith in airline companies to execute their businesses effectively.

This week’s question
This week, Morgan Stanley asked the following question: “Recent management commentary has whipsawed shares as investors questioned commitment to domestic capacity discipline. In light of recent comments and clarifications, do you think the group is still committed to this discipline? Yes or No”

The numbers
After a remarkable 2014 in which shares of Delta Airlines Inc DAL and United Continental Holdings Inc UAL climbed more than 77 percent and American Airlines Group Inc AAL and Southwest Airlines Co LUV more than doubled, recent guidance from the airlines has been a major disappointment to investors who had anticipated the industry continuing to gain momentum. These four airline stocks have all fallen at least 7.0 percent in the past five trading sessions and at least 13.0 percent in the past month.

Southwest’s announcement of 7-8 percent capacity guidance in 2015 and 6-7 percent in 2016, as well as American’s recent commitment to match low-cost prices were both perceived as negatives by the market. Capacity increases have also forced Delta and United to cut Q2 passenger revenue per available seat mile (PRASM) projections.

The results
Despite the recent disappointments, investors remain confident in the airlines for now. According to the survey results, 83 percent of investors believe that the airlines are still committed to discipline.

Morgan Stanley analyst William Greene agrees, writing, “Overall, we believe that the group remains committed to capacity discipline, at least across the legacy carriers AAL, DAL and UAL, despite 2015 outsized additions.”

Other survey results
This week’s Morgan Stanley airlines report also included other recent question of the week results, including the ones pictured below.