Thursday, January 17, 2019

Flight Bookings Suggest U.S. Growth Is Still Ahead: Delta and United reported very strong domestic results but start to see some weakness in trans-Atlantic business

The Wall Street Journal 
By Jon Sindreu
January 17, 2019 7:35 a.m. ET

Airlines are providing an early glimpse into the health of the global economy: Growth appears robust in the U.S., a bit less so in Europe.

Fourth-quarter earnings released this week by Delta Air Lines and United Airlines, two of the largest U.S. carriers, were broadly positive, with both companies beating analysts’ expectations.

United in particular had a positive message for the wider U.S. stock market: Business bookings—large corporate accounts and travel agencies—were up 11% in the first week of the year.

This is a “reasonably good forward indicator for the health of the economy” because “business customers are back in the office and planning business trips,”  said President Scott Kirby in a conference call Wednesday. “Historically if companies are seeing weakness or are worried about the outlook they almost always reduce the travel and entertainment budget for the coming year.”

The strength of bookings is particularly notable given the U.S. government shutdown, which is reducing federal employees’ travel—for work but also leisure, since many aren’t getting paid. Delta estimated that the shutdown will cost the company $25 million in January, contributing to weaker first-quarter expectations.

Looking through the shutdown, however, Delta also said the U.S. economy appears very strong. Domestic revenue from its premium cabins—another key bellwether for the state of flyers’ budgets—continues to set records.

While two airlines don’t make a trend, they do seem to confirm recent data suggesting that fears about a U.S. recession are premature. The stock market’s drop in the last few months of 2018 seems to have been mostly driven by fears—as yet unfounded—that a downturn is due after a decade of uninterrupted expansion, as well as a reasonable correction in the valuation of some overbought technology shares.

Concerns about the rest of the global economy might be more warranted. Earnings expectations in Europe and Asia are being revised down at a much faster pace. Delta is seeing “cautionary signs” in trans-Atlantic flights, and fares in the region are weakening for United. This bodes ill for European carriers, most of which will report figures next month.

One of the main risks faced by money managers this year is underestimating the extent to which the Chinese economy can slow and, especially, how much this will impact the European economy. Judging by early airline results, the U.S. seems like a safer place to invest.

Original article can be found here ➤

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