Avoid airline stocks, trader says ahead of United Airlines' earnings report $UAL (via TradingNation)
Boris Schlossberg, managing director of FX strategy at BK Asset Management, agreed that airlines had a tough road ahead.
"If you think about the airline business, 10% of travel is business travel, and that's responsible for 75% of profits. And ... most business travel just simply isn't happening," Schlossberg said in the same "Trading Nation" interview.— or, for those who must travel, renting or buying fractional shares of jets or finding other means of transport — turning a profit is getting more and more difficult for airlines, he said.
"Given that dynamic where you basically have to chase the lowest common denominator, that very, very price-sensitive customer, [it's] very tough to make money," he said. "Within that parameter, though, I think, probably because they're just insisting on quality and maintaining that everybody must wear a mask and creating a standard of trust, is an interesting pick."
Schlossberg also flagged Southwest Airlines, which he said "can execute within this very, very challenging environment" and doesn't rely heavily on business travel. "But for United and some of the bigger ... carriers, I just can't see how they can make up in volume what they're losing in profit margin going forward," he said.Short sellers have taken interest in airline stocks during the market's recovery. Nearly 9% of United Airlines' float was sold short as of Tuesday, while American Airlines had the highest short interest in the S&P 500 at over 28%.
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