The surging omicron variant was quick to complicate holiday plans when it was first detected just after Thanksgiving 2021. While the U.S. government did not impose any restrictions regarding family or social gatherings during the recent holiday season, many people traveling to such events faced inconvenient challenges. Indeed, airlines quickly began canceling flights and rescheduling others. As it happens, though, the worst catalyst that airline stocks are likely to face in 2022 has nothing to do with the virus. Instead, it has to do with the fifth generation (5G) technology rollout that is rapidly approaching.
Turbulence Ahead for Airline Stocks
In December 2021, the Federal Aviation Administration (FAA) announced that a 5G technology rollout was scheduled for Jan. 5 and issued a directive for airlines. The agency noted that the wireless service rollout would mean that airlines should expect potential restrictions for flights landing in 46 of the U.S.’s largest metropolitan areas in the event of poor weather conditions.
As the Wall Street Journal reports, Congress is currently considering proposals from the telecom and aviation industries, prompted by the possibility of 5G systems interfering with aircraft cockpit safety. While the wireless industry behind the rollout has claimed that there is no risk posed to aircraft safety, the FAA has expressed concerns about cockpit safety disruptions. This has prompted the FAA to advise airlines to prepare for disruptions.
Airlines stocks haven’t reacted negatively to the news yet. Southwest Airlines (NYSE:LUV), American Airlines (NASDAQ:AAL) and Delta Air Lines (NYSE:DAL) have all been trending in the green today, giving the appearance of companies who aren’t worried about a significant catalyst that could easily send their stocks tumbling. However, that doesn’t mean they shouldn’t be worried.
Many Unknowns
As of now, much of this story rests on unknown factors. How many disruptions airlines will see, as well as their severity, is largely dependent on the weather. That said, with 46 large airports possibly affected, it seems likely that some fights will be facing poor weather conditions. This is especially true considering this is taking place in January.
What we do know, though, is that Wall Street hates uncertainty. While it’s clear that airlines are shrugging off fears of the variant, that doesn’t mean that these disruptions won’t be felt. We also shouldn’t forget that international travel is still difficult. The State Department recently advised Americans traveling abroad to make contingency plans for the time being.
What to Expect
While these disruptions will certainly be inconvenient for airline stocks, it should be noted that turbulence is temporary. When a plane experiences it, passengers face some discomfort. Ultimately, however, the flight returns to cruising altitude. That’s likely what we’re going to see on Jan. 5.
InvestorPlace contributor Nicolas Chahine recently speculated that AAL was likely to find new investors due to the resurgence in travel. Even if it is only domestic, in the event of no further government restrictions, airline stocks are likely to recover from the 5G disturbances fairly quickly. Investors should fasten their seatbelts but not be alarmed.
On the date of publication, Nicolas Chahine 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.
