Breaking News
Investing Pro 0
New Year’s SALE: Up to 40% OFF InvestingPro+ CLAIM OFFER

Despite Domestic Strength, Airline Stocks Will Remain A Risky Bet In 2022

By Investing.com (Haris Anwar/Investing.com)Stock MarketsDec 13, 2021 09:31AM ET
www.investing.com/analysis/despite-domestic-strength-airline-stocks-will-remain-a-risky-bet-in-2022-200611326
Despite Domestic Strength, Airline Stocks Will Remain A Risky Bet In 2022
By Investing.com (Haris Anwar/Investing.com)   |  Dec 13, 2021 09:31AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
 
US500
-0.42%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
LUV
+1.23%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
DAL
+0.68%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
AAL
-0.03%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
JETS
-0.10%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

Airline stocks are finishing 2021 mired in uncertainty. The emergence of the Omicron variant has clouded their growth outlook yet again. And that after it was just beginning to improve following one of the steepest travel declines in recent history. 

JETS Weekly TTM
JETS Weekly TTM

The US Global Jets ETF (NYSE:JETS) is down more than 12% during the past one month. The sector decline has put some of the largest airline stocks back into negative territory for the year. With health authorities still trying to figure out the exact danger entailed by the new variant, investors have moved to the sidelines.

DAL Weekly TTM
DAL Weekly TTM

Shares of Delta Air Lines (NYSE:DAL), the most valuable US carrier, have slipped 27% from their 52-week high.

Along with the pandemic-related hit, there are additional pressures likely to continue hurting airlines next year. The biggest among them is higher fuel costs which threaten airline earnings in the current quarter and beyond.

Delta Air warned in late October that it will likely return to red ink in the current quarter, mainly because of higher jet-fuel costs, which it forecast rising as high as an average of $2.40 a gallon, up from $1.94 in the third quarter.

Fuel and labor are the largest expenses for carriers, and persistently higher prices could help derail efforts by most US airlines to resume recording profits while trying to recover from the collapse in travel during the coronavirus pandemic.

Weaker Pricing

Goldman Sachs last week downgraded Southwest Airlines (NYSE:LUV) to a sell from neutral and cut its 12-month price target to $36 from $59, even after noting considerable cost efficiencies. Its note to clients said:

“This inflation will drive a slower-than-industry return to profitability as we expect revenue benefits from these initiatives will be offset by a weaker domestic pricing environment.

“We believe Southwest’s slower return to pre-pandemic profitability will result in LUV shares underperforming our airline coverage universe.”

Southwest told investors in October that it expects to be profitable this quarter and all of next year, on its way toward generating as much as $1.5 billion in earnings and paying dividends in 2023. 

AAL Weekly TTM
AAL Weekly TTM

American Airlines Group (NASDAQ:AAL), which is the most financially beleaguered of the US operators, also joined Southwest to warn about higher costs this quarter. It expects to pay as much as $2.48 a gallon for fuel, up from an average $2.07 in the third quarter. 

Despite the pandemic uncertainty and cost pressures, the trend in air traffic in this Omicron environment shows that travelers are much more willing to take flights currently than they were last year.

According to the Transportation Safety Administration data, recent airport traffic is at about 85% of the pre-COVID peaks seen in late 2019—not as good as the nearly 90% posted over the Thanksgiving weekend, but better than some investors had feared. 

These encouraging air traffic trends, however, don’t hide the fact that airlines have been a bad investment for investors for many years. The JETS ETF is down 27% during the past five years, a period during which the S&P 500 more than doubled. 

And even if domestic traffic rebounds next year, there is little chance the business segment—which is the most profitable for airlines—will return to pre-COVID levels quickly. The next stage of growth for airlines, which will depend on the resumption of international and business travel, is still facing a variety of uncertainties as new COVID variants emerge and all types of companies look to cut costs. 

Bottom Line

Airline stocks aren't a compelling investment case. These carriers face a variety of challenges, including higher fuel costs, labor shortages, and the potential emergence of new coronavirus variants. Amid these headwinds, it’s unlikely that airline stocks will be able to outperform the market in 2022.

Despite Domestic Strength, Airline Stocks Will Remain A Risky Bet In 2022
 

Related Articles

Despite Domestic Strength, Airline Stocks Will Remain A Risky Bet In 2022

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.
  • Any comment you publish, together with your investing.com profile, will be public on investing.com and may be indexed and available through third party search engines, such as Google.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email