Shares of America's top three airlines -- American Airlines (AAL 0.67%), Delta Air Lines (DAL 0.60%), and United Continental (UAL 0.81%) -- slumped on Monday as severe weather ripped through the U.S., causing thousands of flight cancellations. Delta stock fell 0.6%, while American and United shares each fell 1.3%.
Dec. 28 Airline Stock Performance, data by YCharts.
Weather-related stock declines like this are not very unusual for airline stocks. But while bad weather can have a modest impact on airline profits in any particular quarter, it isn't an important factor in determining any airline's long-term value. As a result, these weather incidents are often buying opportunities for airline stocks.
Cancellations soar
Airlines benefited from a mild start to the winter season in 2015, but weather conditions turned unfavorable just in time for the busy Christmas travel period. Cities in almost every region of the country -- but particularly the Midwest, the South, and the Northeast -- were affected by severe weather.
Saturday was the first day of the Christmas return travel period. That day, airlines canceled 506 flights in the U.S., while another 4,748 flights were delayed. A typical day has roughly 150 cancellations and 4,000 delays, according to FlightAware.
That was just a foretaste of what was to come. On Sunday, there were 1,638 cancellations and 6,395 delays in the United States. Monday was still worse, with 2,916 cancellations in the U.S., although "only" 5,421 flights were delayed.
American Airlines probably felt the largest impact of any airline, because it has big hubs in Dallas-Fort Worth and Chicago, two of the worst-hit cities. On Sunday, it canceled 462 mainline flights. Including regional flights, American probably accounted for at least 40% of Sunday's U.S. flight cancellations.
American Airlines felt the biggest winter storm impact this week. Image source: American Airlines.
On Monday, American Airlines was heavily affected again, with 352 mainline cancellations and 350 cancellations at its wholly owned regional subsidiary Envoy Air. (This doesn't include other regional airlines that operate flights for American Airlines.)
United Continental, which also has a hub in Chicago, was similarly affected, with 300 mainline cancellations. In total, more than 1,300 flights at Chicago's O'Hare Airport were called off, most of those being either American Airlines or United Airlines flights.
By comparison, Delta Air Lines wasn't badly affected. It reported only 3 mainline cancellations on Sunday and 11 mainline cancellations on Monday, despite operating a similar number of flights as American and United. To some extent, this can be explained by luck, as Delta's big hubs had more favorable weather. But Delta is far more reliable than American and United under any circumstances.
In the long run, it doesn't matter
From a long-term investing standpoint, weather-related cancellations don't have a measurable impact on airline stocks. A bad winter might cost an airline $0.05 or $0.10 in earnings per share during any particular year, but it wouldn't reduce its long-term earnings power.
More important factors such as fuel prices and the health of the U.S. economy point to airlines having another year of stellar profitability in 2016. As long as those two key tailwinds stay in place, investors can feel comfortable that airline stocks will bounce back from any weather-related dips.
