Investing in the airline industry generally means buying a piece of stable companies with generous support from the government. That being said, airlines have plenty of chances to make mistakes like any other type of business. While most companies learn from their mistakes and improve long-term, airlines constantly teeter on the edge of collapse. This has led to this list of doomed airline stocks to sell.
Due to the high-risk nature of managing air travel, one crash or televised mistake can decimate stock value. This means that when airline stocks endure prolonged turbulence, investors should consider putting on their parachutes. Soothsayers may quote the average 4.5% profit margins of 2023 to calm investors, but many individual airlines struggle nonetheless.
No matter how high the potential of an airline stock once was, staying vested too long often spells disaster. From government regulations to rising debt interest rates, these three doomed airline stocks face dark clouds ahead.
American Airlines Group (AAL)
Often touted as the largest airline in the world by scheduled passengers, American Airlines Group (NASDAQ:AAL) now faces the reality of business debt. Since its prior bankruptcy in 2011, AAL has struggled to balance the cost of rising staff wages and jet fuel. Then, only two years after its bankruptcy, AAL acquired US Airways in an attempt to become too big to fail.
That acquisition, though attractive on paper, put AAL into a debt spiral it has been fighting to escape ever since. With over $40 billion in debt, AAL now faces crushing interest rates that have continued to rise since 2021.
For many airlines, operating with debt allows for the expansion of routes and aircraft inventory, as both are exceedingly expensive. By leveraging their debt, airlines grow towards a more profitable size, but interest can quickly eat away cash generation. As such, investors may want to consider avoiding doomed airline stocks saddled with debt.
Spirit Airlines (SAVE)
It likely surprises no one that Spirit Airlines’ (NYSE:SAVE) value plummeted last month amongst talks of mergers. That’s because the long-time, budget-friendly airline known for its highlighter yellow aircraft may be in its final days of independence. With JetBlue’s open attempt at acquiring the discount airline, Spirit’s weak market position stands as a warning to investors.
Due to judicial rulings, the merger currently sits on pause, pending an appeal to the First Circuit Court. Initial briefs for the appeal are due by February 26th, and currently, both JetBlue and Spirit want the merger to go through.
Should it be successful, investors may see a gentle increase in SAVE temporarily, however, long-term effects will likely be negative. Spirit’s operating costs will likely increase as it integrates into JetBlue’s management, resulting in increased flight costs. If the merger fails due to anti-trust laws, Spirit’s unprofitable trend will ensure SAVE stays among the doomed airline stocks.
Air Canada (ACDVF)
The flag carrier of Canada, Air Canada (OTCMKTS:ACDVF), continues to rate amongst the worst airlines in North America. Though offering a wide selection of routes, AC only landed two-thirds of its flights on time in 2023. This spells trouble for AC since federal regulations require substantial compensation for travelers who are delayed more than three hours.
Furthermore, AC faces scrutiny over the mistreatment of passengers with disabilities as its CEO struggles to justify accessibility shortcomings. Several customers in need of physical accommodations suffered from poor travel conditions due to overall lacking customer service. Such high-profile mishaps rapidly tarnish even the grandest of airline reputations, leading to doomed airline stocks.
With the microscope lens of social media on every major company’s services, no airline can afford such negative press. Until Air Canada applies some of the famous Canadian hospitality to its operations, it is unlikely the airline will see substantial success.
On the date of publication, Viktor Zarev 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.