Airline stocks to buy: will they soar in summer?
What are the best airline stocks to buy? Here, we look at whether the embattled aviation sector is finally beginning to turn the corner
The coronavirus pandemic brought airline stocks to their knees. Flight routes were cut, tens of thousands of staff were made redundant and billions of dollars were refunded and tickets cancelled. Successive waves of infections forced flight operators to retreat again and again – just as glimmers of normality had begun to return. They also went cap-in-hand to governments to keep in business.
However, big news from Pfizer, Moderna and AstraZeneca in late 2020 gave airline stocks a much-needed boost. Investors suddenly became optimistic that vaccination rollouts would help air travel recover faster than first feared. They saw pent-up demand in summer 2021, when passengers with both time and money sought a taste of freedom.
“Usually, when you have money, you don’t have time to go travelling. And when you have time, you don’t have money to go travelling,” said Cowen analyst Helane Becker on CNBC. “Well, this year, we had both people had money and time. And so they used it to travel. And the airlines had a really hard time keeping up.”
It’s important to note that airline stocks still face challenges, especially when it comes to business travel. According to research by McKinsey, business travel traditionally experiences a much slower recovery after a major economic downturn. This will make uncomfortable reading for those who own airlines stocks, given how lucrative this revenue stream is. After the global recession seen in 2008 and 2009, it took five years for corporate bookings to return to normal.
Said analyst Conor Cunningham of MKM Partners: “Expectations are low, I would say for business travel.”
In its “return of corporate travel” report in July 2021, McKinsey profiled four key segments: those who rely on travel for their business; those who travel to cultivate client relationships; travellers from the public sector, professional associations, and nonprofits; and the segment described as “never returning”.
“Digital adopters who are able to maintain high levels of effectiveness while working remotely may never return to corporate travel,” McKinsey said. “Furthermore, advances made in digital technologies that enhance oversight of outposts have paved the way for corporate travel to be further reduced.”
Covid-19 forced companies and conferences around the world to turn to remote working and video conferencing, and it’s fair to say that many businesses were surprised at how well this worked. With many firms downsizing or closing their bricks and mortar offices, it’s likely that working from home is here to stay, and business-class cabins may never be as full as they once were. That is why airlines are leaning heavily on summer 2022 for the comeback of leisure travel.
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Here, we’re going to examine how the airlines stock market is shaping up.
Airline stocks news: flying again?
Analyst Becker is pointing to summer 2022 for the big comeback, especially on North Atlantic routes, shuttling North Americans to Europe and Europeans to North America. United Airlines gets her nod as the best positioned to benefit.
”You’re going to have two to three years worth of demand, and you’re only going to be at about 80% of capacity; that means pricing is going to be very strong,” Becker said.
United reported its year-end results on 19 January, forecasting 2022’s full-year capacity lower than 2019. Near-term schedules are smaller, due to the rapidly spreading omicron variant of Covid-19 and its impact on both travellers and staff. But bookings for spring and beyond remain strong. UAL expects to bring 52 of its grounded Boeing 777’s gradually back to service as demand returns.
United reported a $1.96bn net loss on $24.63bn revenue in 2021. UAL kept in the air with $5.8bn in payroll support from the US government in 2021, higher than the $5.1bn it received in 2020’s stimulus package. In return, it gave prizes to loyalty program members in vaccination incentive sweepstakes, flew 15,000 people on 94 flights out of Afghanistan, and committed to buy 1.5 billion gallons of sustainable aviation fuel over 20 years, more than all competitors.
On 13 January, Delta announced its full-year, pre-tax loss of $3.4bn on $26.7bn revenue. The $1.1bn pre-tax profit in 2021’s second half made DAL the only US airline to fly in that territory. As a result, it delivered $0.44 per share earnings.
What is your sentiment on AAL?
“Omicron is expected to temporarily delay the demand recovery 60 days, but as we look past the peak, we are confident in a strong spring and summer travel season with significant pent-up demand for consumer and business travel,” said Delta CEO Ed Bastian to analysts.
The company ended December with revenues at nearly 80% of 2019 levels.
American Airlines Group Inc reported a day later, on 20 January, a full-year, net loss of $2bn on $29.9bn revenue, a $3.09 per share loss. AAL transported 165 million passengers in 2021, more than any other US carrier. American chairman and CEO Doug Parker is retiring at the end of Q1 and handing the reins to new boss Robert Isom.
“Over the past year, we have experienced periods of high travel demand countered by periods of decreased demand due to new Covid-19 variants,” Parker said. “This volatility has created the most challenging planning environment in the history of commercial aviation.”
United’s Bastian said his airline didn’t see mass-cancellations from passengers due to omicron; the bigger challenge was losing crews to the variant, which forced delays and cancellations. So, he’s looking forward to the day Covid-19 becomes endemic.
“We do really believe that we're going to enter a nice period of being able to manage and create a set of normalcy around travel behaviours particularly but hopefully life in general. And this virus will become very similar to what we have with the flu right now and move into a seasonal category with tools and technologies to manage”.
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Will airline stocks go up? If so, what are the airline stocks to watch?
What are the best airline stocks to buy? Well, the best airline stocks to invest in are probably going to be for carriers that focus on long-haul journeys. Airlines that focus on domestic travel and short-haul flights haven’t been as badly affected as operators who offer services that span many thousands of miles.
CNN Money’s panels of analysts recommend buying UAL and DAL stock, but they say hold AAL for now.
The 2022 forecast for United pegs $58 as the median target. The 19 analysts suggest it could go as low as $40 or as high as $78. It traded 20 January at $42.88, substantially less than its 52-week high of $62.45 last 17 March.
Analysts think DAL could also drop to $40 this year, but they collectively set $51 as the median and $67 as the high. Its $38.84 at time of writing compares with a 52-week high of $51.65 on 4 April.
AAL had the most-pessimistic forecast for the coming months. Analysts forecasting a worst-case scenario of a $5 floor. They believe it will more likely be at a $19 median, with an outside chance at flying to a $28 high. It was trading at $16.76 on 20 January, down from its 2 June high of $25.82.
Even the most desirable airline stocks to invest in could suffer fresh losses in the coming months if the pandemic introduces another round of turbulence. Stay tuned for spring.
To use a plane analogy, the altitude of the airline sector is certainly beginning to rise again. However, investors are still advised to keep their seatbelts on.