News

Low-cost carrier Sun Country Airlines Holdings (NASDAQ: SNCY) sees turbulence on the horizon, and the forecast is causing investors to bail.

Shares of Sun Country fell 20.4% in May, according to data provided by S&P Global Market Intelligence, after the company gave disappointing guidance concerning the start of the all-important summer travel season.

The skies are getting crowded around Sun Country

Airline stocks have been all over the place over the last few years. The industry was hit hard by the pandemic but has enjoyed a surge in demand in the years since as vacationers have tried to make up for time lost during quarantine.

The question for investors is how long the good times will last for what is a cyclical industry. With interest rates on the rise and concern growing about consumer belt-tightening, it is possible demand for travel could fall in the quarters to come.

Sun Country's first-quarter earnings, released in early May, did little to quell the fears. The company earned $0.66 per share, a tad light compared to Wall Street's $0.68 estimate, and revenue of $311 million missed expectations by $5 million.

In the current quarter, which includes June vacation travel, Sun Country expects revenue of $255 million to $265 million. That's significantly below Wall Street's $286 million consensus estimate coming into earnings season.

Sun Country said an influx of competition into its key markets is putting pressure on fares, with the airline pledging to adjust its network in the quarters to come to account for capacity shifts.

Is Sun Country stock a buy after a weak May?

Aviation is a difficult business, in part, because for all the talk from airlines about how they differentiate themselves, most consumers simply want the cheapest possible fare to get from point A to point B. The competition Sun Country is dealing with is eating into pricing power and giving investors pause.

In recent years, there has been ample demand for every seat airlines made available. But 2024 is shaping up to be a story of the "haves" and the "have nots," with major carriers including Delta Air Lines and United Airlines soaking up the lion's share of demand and generating strong earnings, and others left to fight over what is left.

Sun Country has the wherewithal to survive this period of weakening demand, but it has few levers to pull to quickly reverse the trends. Investors, like travelers, would be wise to shop around.

Should you invest $1,000 in Sun Country Airlines right now?

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Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool recommends Delta Air Lines. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.