Airlines were doing great at getting people back on their feet after a brutal 2020 ravaged by the Covid-19 pandemic. Passengers finally want to travel again. However, airline stocks are not doing so well right now.
You can chalk that down to the omicron variant, which is spreading fast and highly contagious. After a harrowing couple of years, airlines were finally looking to get their mojo back. And there was evidence this was happening.
But with omicron sweeping across the globe, airlines are struggling once again. The rapid transmission rate means airlines are facing a shortage of employees. Major airlines had to trim personnel extensively last year. Therefore, they do not have adequate staff to cover regular flight schedules. Thousands of flights were cancelled in December and January because of weather and omicron-related staffing shortages.
The omicron variant has already spread to the U.S., as well as most of Europe and Asia. It has the potential to slow down the overall recovery of the airline sector.
For now, ticket sales remain strong. Millions across the globe are expected to fly as flights operate at high capacity. That means it is the ideal time to invest in your favorite airline stocks that are trading at a steep discount.
- American Airlines Group (NASDAQ:AAL)
- Delta Air Lines (NYSE:DAL)
- United Airlines Holdings (NASDAQ:UAL)
- Southwest Airlines (NYSE:LUV)
Airline Stocks: American Airlines Group (AAL)
American Airlines is a world leader in the airline industry. It is a huge airline with an extensive route network and a robust international business model. However, due to significant debt and reliance on global markets, AAL will take time to get its mojo back.
AAL executives are looking to build and create new alliances such as their deal with JetBlue Airways (NASDAQ:JBLU). The partnership has helped AAL customers greatly by adding more offerings to the U.S. northeast.
Meanwhile, American Airlines has been getting a lot of support from the federal government. And it’s finally paying off. The company reported $169 million in profit for the third quarter, thanks to over $990 million in federal payroll support passed by Congress.
Revenue came in at $8.97 billion, up significantly from $3.17 billion last year. But it is still down roughly 25% from the 2019 figure. When you exclude one-time items, like government payroll support and other miscellaneous expenses taken into account, American had a loss of 99 cents per share instead of the analysts’ expectation for $1.04.
“While we don’t like reporting losses, this was our smallest quarterly loss since the pandemic began,” wrote CEO Doug Parker and President Robert Isom in a letter to employees.
Despite these positive beats, investors are not biting. Over three months, AAL stock is down 5%. Again, much of the sentiment is because of omicron variant fears. Considering the size of the legacy carrier, it is just a matter of time before the company bounces back. The number of international routes by American Airlines has increased tenfold in just one year, with the company launching new services to Tel Aviv and Delhi.
If it builds on this performance, then the future is bright.
Delta Air Lines (DAL)
Delta has been developing new ways of providing service and lower prices to better compete with discount airlines for several years now. This airline is behind recent innovation in this industry as it consolidates smaller carriers that have helped stabilize the business when acquiring Northwest Airlines back in 2008-2009.
Delta is a company that everyone in the airline industry strives to be like. Delta has always been at the forefront when it comes to aviation industry innovations and Delta’s purchase of an oil refinery is no different. The company wants complete access, control over jet fuel supplies so it can ensure its customers have reliable flights every time. In an increasingly global market, Delta’s post-pandemic stability and strong labor relations make it a perfect candidate for international carriers looking to recover from the pandemic.
Third-quarter revenue and profit from Delta topped analysts’ expectations but were still lower than in 2019. Delta’s third-quarter profit fell 19% from the previous year, and it was its second consecutive profitable quarter since 2019 Covid-19 first reared its ugly head. However, the point worth noting is that this is the only profit without the cushion of U.S aid.
The airline is hiring more people, and it plans on adding 8,000 people in various roles by 2022. The airline was under immense pressure this summer due to long wait times. It vowed to increase staffing to ease the bottlenecks, and it looks like its promise has been kept.
Nonetheless, Delta is warning that it will be under pressure from more expensive fuel in late 2021 despite improving travel demand. Since the fourth-quarter results are likely to be depressed, waiting for the dip before buying in is better. Currently, shares are trading at a very healthy 22.9x forward price-earnings.
Airline Stocks: United Airlines Holdings (UAL)
United Airlines has a long history of catering to the needs and wants of its customers in Silicon Valley and providing service throughout Asia. The major American airline is the envy of many companies. It has a large footprint in crucial business markets and are very popular with corporate travelers.
However, that focus came under fire due to the coronavirus. UAL suffered because of not having a diversified travel route. During the pandemic, United’s advantage in terms of air travel has diminished. This doesn’t mean that it’s going to give up its position as a top American airline, though.
United Airlines’ performance in Q3 was better than expected, with adjusted earnings per share surprising investors and revenue exceeding forecasts. United reported revenue of more than $7.8 billion in Q3, even higher than analysts anticipated. It is one of the most successful quarters for UAL since the pandemic.
United’s load factor has improved by 59.2%. But it is still below pre-pandemic levels. And forecasts predict that the airline will continue to struggle with efficiency for some time. The load factor is a percentage that shows how full an airplane’s seats are. Airlines want this number as high as possible.
The company is looking to grow its international capacity by 10% in 2022, while domestically, it plans to maintain a similar output level. It cited a rebound in premium leisure travel, recovery of business trips, and reopening European borders as factors supporting its recent success.
In Q4, UAL expects the capacity to be down roughly 23% compared to the fourth quarter of 2019. Revenue is forecasted to be down 25% to 30% during the same period. Shares are up just 9% in the last 12 months. So, there is an incentive to buy right now, considering the sluggish price momentum and the airline’s niche focus.
Southwest Airlines (LUV)
Southwest Airlines is the original discounter, but it’s a maverick that no longer flies below anyone’s radar. The Dallas-based airline has never landed in bankruptcy court. Its operations always remain profitable even when other significant carriers struggle with their finances like many competitors do today regularly.
The airline has run into some labor trouble, but luckily it has one of the best balance sheets in the industry. The company’s operating revenues increased 161% in the third quarter of this year but were 17% less than the 2019 figure due to a pandemic that hit them hard. Southwest Airlines ended the third quarter with a $17 billion liquidity reserve, well over its debt outstanding at under $12 billion.
Despite the company’s revenue increasing in recent quarters, it is not expected to be profitable in the year-end period. The fourth quarter of 2021 will see a capacity that remains below what was seen pre-pandemic levels.
Investing in any airline stock is a risky business. Investors have been burned by the pandemic’s effects on air travel before, and the new variants are not helping matters. That said, Southwest has historically outperformed its competitors when operating during tough periods, making it one of the best airline stocks out there.
On the publication date, Faizan Farooque 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.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. You can check out his analysis on InvestorPlace and TipRanks.