Today, airline stocks are in focus for many investors. Indeed, these pandemic recovery stocks have surged since pandemic lows. However, shares of Delta Airlines (NYSE:DAL), United Airlines (NASDAQ:UAL) and Southwest Airlines (NYSE:LUV) all remain well below their pre-pandemic highs.
That’s certainly understandable. We’re still likely a ways away from seeing pre-pandemic passenger volumes come back. Additionally, higher fuel prices have hit margins and added to the pressure for investors betting on a continued recovery in the airline sector.
However, what’s interesting when looking at the big three airlines today is the price action for these stocks. After each airline opened lower this morning, all three have gained between 3% and 4% at the time of writing.
Let’s take a look at what’s driving airlines higher today.
Weaker Forecasts Means Higher Stock Prices for Airline Stocks?
Indeed, today’s price action in airline stocks is a head scratcher. Each of the three aforementioned U.S. airlines cut their forecasts on weaker bookings. However, each of these stocks are seeing otherwise impressive gains today.
What gives?
Well, according to sentiment online, it appears many investors are brushing off these weaker-than-expected forecasts. Some have called these forecasts a “bump in the road.” Others point to the longer-term trajectory airlines are likely to be on over the medium term.
This sentiment is certainly understandable. Indeed, travel is coming back in a big way. And while near-term demand may be hit as a result of the delta variant, a broader reopening thesis is still at play with airlines.
However, reports that airlines may not be profitable until next year should, theoretically, be bearish. United Airlines reported that, contrary to previous forecasts that showed pre-tax profit this year, the company wouldn’t be profitable until 2022. American Airlines said sales could still be down approximately 28% compared to 2019 levels. And Delta suggested its earnings are likely to come in at the lower end of the previously provided range.
These numbers suggest investors may have to wait a bit longer to see the profitably they desperately want. However, it appears investors are willing to be patient today.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
