The shares of SkyWest (NASDAQ: SKYW) continue to trade 25% below pre-Covid levels despite a substantial improvement in air travel demand. Notably, passenger numbers at TSA checkpoints are almost 20% below 2019 figures – highlighting the ongoing recovery in the travel and tourism sector. The company reported positive operating cash last year despite a 30% contraction in revenues, primarily supported by the U.S. government’s payroll support program. Given the recovering travel demand, Trefis believes that SkyWest stock has substantial room for growth. We compare SkyWest’s stock performance during the current crisis with that during the 2008 recession.
2020 Coronavirus Crisis
Timeline of 2020 Crisis So Far:
- 12/12/2019: Coronavirus cases first reported in China
- 1/31/2020: WHO declares a global health emergency.
- 2/19/2020: Signs of effective containment in China and hopes of monetary easing by major central banks helps S&P 500 reach a record high
- 3/23/2020: S&P 500 drops 34% from the peak level seen on Feb 19, as Covid-19 cases accelerate outside China. Doesn’t help that oil prices crash in mid-March amid Saudi-led price war
- From 3/24/2020: S&P 500 recovers 94% from the lows seen on Mar 23, as the Fed’s multi-billion dollar stimulus package suppresses near-term survival anxiety and infuses liquidity into the system.
In contrast, here’s how SKYW and the broader market performed during the 2007/2008 crisis.
Timeline of 2007-08 Crisis
- 10/1/2007: Approximate pre-crisis peak in S&P 500 index
- 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
- 3/1/2009: Approximate bottoming out of S&P 500 index
- 1/1/2010: Initial recovery to levels before accelerated decline (around 9/1/2008)
SkyWest vs S&P 500 Performance Over 2007-08 Financial Crisis
SKYW stock declined from levels of around $25 in October 2007 (pre-crisis peak) to levels of around $10 in March 2009 (as the markets bottomed out). However, the stock gained significantly post-2008 crisis to levels of about $17 in early 2010 – rising by 65% between March 2009 and January 2010. In comparison, the S&P 500 Index first fell 51% in the wake of the recession before recovering 48% by January 2010.
SkyWest’s Fundamentals in Recent Years Look Stable
SkyWest’s revenues declined by 5% from $3.2 billion in 2017 to $3 billion in 2019, as capacity and ticket prices remained fairly stable. The net margins also deteriorated by 2-percentage points due to higher fuel expenses and administrative costs. Thus, the EPS decreased by 20% from $8.28 in 2017 to $6.68 in 2019. In Q1 2021, the company’s revenues fell by 26% (y-o-y) as block hours observed a similar contraction and load factor shrunk by 10-percentage points.
Phases of Covid-19 crisis:
- Early- to mid-March 2020: Fear of the coronavirus outbreak spreading rapidly translates into reality, with the number of cases accelerating globally
- Late-March 2020 onward: Social distancing measures + lockdowns
- April 2020: Fed stimulus suppresses near-term survival anxiety
- May-June 2020: Recovery of demand, with gradual lifting of lockdowns – no panic anymore despite a steady increase in the number of cases
- Since late 2020: Weak quarterly results, but continued improvement in demand and progress with vaccine development buoy market sentiment
Given the company’s positive operating cash during the pandemic and recovering travel demand, we believe that there is more room for growth in SkyWest stock.
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