Airline stocks could suffer if 'return to business travel gets pushed back’ amid pandemic: Analyst

Raymond James Managing Director Savanthi Syth joins Yahoo Finance Live to discuss airline stocks and concerns about the Omicron variant.

Video transcript

ZACK GUZMAN: Welcome back to Yahoo Finance Live. Of course, we have been watching how the market's been reacting to the latest updates on the omicron variant here, hitting airlines once again, as well as analyst predictions for where airline stocks could go, including updates from Raymond James, slightly cutting some of their forecasts here and price targets for some of the leading major airlines there, as you see kind of a tough day for all of those, as travel, once again, enters the limelight here.

And for more on that, I want to bring on Raymond James managing director, Savanthi Syth joins us now. And Savanthi, when you look at your price targets getting trimmed at some of these airlines maybe not all that surprising, given what we saw earlier in the pandemic every time a variant comes up. But talk to me about how large these cuts are and how impactful it is, given the fact that the holiday quarter is quite important for these airlines.

SAVANTHI SYTH: Thanks for having me. And what I would say is a lot of our cuts really weren't about omicron. It was really about the rising COVID cases here in the US, as well as in Europe. And really, from the US perspective, the biggest issue here is leisure demand is back, [? VFR ?] demand is back. They get hit sometimes when COVID cases go really high. But the bigger issue is the return of business travel.

And with the COVID cases high, we think the return to office gets pushed back. And then the return to business travel gets pushed back. So that's really what pushed our estimates lower. And we took our kind of target prices down, but maybe around 5% as a result for losing another month or two of business travel in the year. So that's really what we're focused on here. Omicron, we're keeping an eye on it, and we'll see how it progresses. But we should in a few weeks exactly how that will play out.

AKIKO FUJITA: And when you think about the travel restrictions that have been imposed since we first learned about this new variant, flights from Southern Africa not a significant chunk if you think about American Airlines and American carriers overall. The president was asked about this yesterday, saying, number one, with so many cases popping up over in Europe, for example, could additional restrictions be imposed? What's the case you're operating under? What's the expectation there?

SAVANTHI SYTH: Yeah, and I think we have a testing requirement right now. I think that goes a long way to helping things. I'm not sure. We don't see, you know, restrictions being implemented. But again, we're under the assumption that it seems that omicron is more transmissible, but maybe not as lethal. So as we get more information, I think there probably is unlikely to be restrictions, but that is definitely a risk.

ZACK GUZMAN: We're also getting the update, Reuters reporting that the Senate is inviting the CEOs from seven of the top US airlines here to testify, more specifically to learn about how they used some of that emergency pandemic aid and how it may not or maybe did help some of the labor stresses that we saw as these airlines started right back up and offered some of the routes that they may have reeled back in, in the pandemic. I mean, what do you make of that? And I guess, how much more might be needed there, given some of these disruptions that could come from this latest variant?

SAVANTHI SYTH: Yeah, I think it's a mixture of things, really, that's caused some of this. And some of it is the airlines, they did get funding that covered about 70% of their payrolls, 2019 payrolls. So they didn't furlough anybody, but they did offer voluntary leaves. And when you put somebody on leave, when you bring them back, there is a training period. I think airlines just didn't see how quickly things would come back. And so that was that training lag.

There's also other things that have changed during the pandemic, which is they waived-- they had waivers for sick leave, and there were a lot more absenteeism happening for various reasons. And so, I think there are a lot of different reasons. And I'm not sure that they fell short in taking that money and not keeping people on the payrolls. And I think they'll have to explain that to Congress and show where the money has gone.

ZACK GUZMAN: As if they didn't have enough things to worry about right now, also that potentially on their plate as well. Raymond James managing director Savanthi Syth, I appreciate you taking the time here to chat with us today. Thanks again.