Why airline stocks are flying Tuesday

Posted: 15 March 2022 4:49 pm
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Carriers raised revenue guidance after seeing travel demand strengthen ahead of spring and summer travel seasons. Is it safe to invest in the sector again?

Airline stocks are on the rise Tuesday after several carriers issued revised revenue guidance that paints a more positive travel outlook than what was previously anticipated, suggesting air travel is on the rise again.
Shares of Delta Air Lines (DAL)] 10.6%, United Airlines (UAL) 10.74%, American Airlines (AAL) and Spirit Airlines (SAVE) all traded up by as much as 10% Tuesday morning, while Southwest Airlines (LUV), JetBlue Airways (JBLU) and Alaska Air Group (ALK) were all up 7.5% or more.
Does Tuesday’s rally mean investors should buy into the sector, or do dark skies still lie ahead for airline stocks?

What happened?

On Tuesday, several US airlines released updated financial and operational guidance relating to the first quarter of 2022 in conjunction with investor presentations for the J.P. Morgan Industrial Conference.
Delta Air Lines, United Airlines and Southwest Airlines all said bookings came in ahead of expectations and that the recovery in travel demand has been faster than projected. American Airlines echoed United’s remarks about leisure and business travel but didn’t provide specifics on its bookings.
Here’s what they said.

Delta Air Lines

Delta said it now expects ​​to recover to 78% of its 2019 revenue levels, up from a previous guidance of between 72% and 76%, due to strong spring and summer travel demand.

United Airlines

United said Tuesday that demand for both leisure and business travel has exceeded the company’s previous expectations. Bookings for both future leisure and business travel are up from the start of the new year. As a result, United now expects first quarter 2022 revenue to be near the better end of previous guidance of down between 20% and 25% versus the first quarter 2019.

Southwest Airlines

Southwest said it now expects first quarter 2022 revenue to come in down between 8% and 10% compared with 2019 levels, an improvement from the previous guidance of between 10% and 15% down. This comes as COVID-19 cases trend downward, with the carrier seeing stronger-than-anticipated bookings for spring break travel and strong performance from the company’s loyalty program.

American Airlines

American Airlines now expects its first quarter 2022 revenue to be down approximately 17% compared to the first quarter of 2019, which is better than the company’s previous guidance of down approximately 20% to 22%.

JetBlue Airways

The smaller JetBlue Airways is also seeing a very strong demand environment, resulting in first-quarter revenue that has been outperforming the carrier’s original guidance range. The airline now expects revenue to decline between 6% and 9% during the first quarter of 2022, compared to the same quarter in 2019. This is compared to the prior guidance of a revenue decline between 11% and 16%.
At the time of this writing, Spirit Airlines and Alaska Airlines had not filed statements with the SEC.

Now what?

Despite Tuesday’s bump, airlines stocks are still way down from their 52-week highs. They’re also facing higher fuel costs, which could eat into profits. Aircraft delivery delays due to persisting supply chain constraints are leading several airlines to reduce their total capacity plans for the year.
And while the broader environment seems to be improving, the unpredictability of COVID-19 could have a lingering effect on airlines. China on Monday issued new lockdown orders on tens of millions of people in an effort to curb a record new surge of COVID-19 cases. Several countries in Europe are also seeing rising cases and it could soon be the case in the US. While the US may not issue new lockdowns, airlines could see fewer people travel as a result.
In short, investors should expect more volatility as airlines continue to recover to pre-pandemic levels.
See our guide to airline stocks for more information.
At the time of publication, Matt Miczulski did not own shares of any equity mentioned in this story.

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