This Industry Is Flying High With No Slowdown in Sight

This Industry Is Flying High With No Slowdown in Sight

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Dave Gilbert here, Editor of Smart Money.

It’s hard to imagine any industry recovering from an almost total wipeout, but that’s exactly what the airlines have done since the COVID-19 shutdowns in 2020 cratered the number of passengers traveling 96%.

That’s about as close to a total wipeout as you can get.

The only situation that comes even close was after the Sept. 11, 2001, terrorist attacks when U.S. airspace was shut down for two full days before flights gradually resumed.

The CEO of Qantas Airways Ltd. said this week that the airline came within two to three months of not surviving in early 2020.

Here are some numbers that show how drastic the slowdown was…

  • On Apr. 10, 2019, nearly 2.5 million passengers went through TSA checkpoints at airports.
  • On Apr. 10, 2020, 90.5 thousand passengers went through TSA checkpoints.

Two-and-a-half years later – this past Sunday, Oct. 23, 2022 – the number of people passing through checkpoints was back at 2.5 million.

Air travel has recovered, even with a slower economy, inflation, and higher fuel costs. And the biggest airlines are expecting continued strong demand and growth.

If you’re making travel plans for the upcoming holiday season, you are not alone. That’s one reason travel stocks have “taken off” (sorry) over the last month…


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The Recovery Is Now a Reality

The past week has given has a good look at the rebound in travel, which has been on Eric Fry’s radar for more than a year. He wrote in the September Investment Report issue

Travel is back. The trend is unmistakable… and it’s gaining momentum. Over Labor Day weekend, U.S. air travel volumes finally topped pre-pandemic levels.

In fact, Eric began watching for the bounce back in travel in early 2021. He’s said his bullishness may have been a little early, but the recovery now seems to be a reality.

Consider what we’ve seen and heard in just the past two weeks from the country’s biggest airlines…

  • Delta Air Lines Inc. (DAL) reported record revenue for the third quarter and provided fourth-quarter expectations way ahead of analysts’ projections as demand remains strong. The airline expects revenue this quarter to increased 5%-9% from before the pandemic. “As we look into the fourth quarter, there’s nothing that gives me pause to think that this momentum isn’t going to continue,” said CEO Ed Bastien.
  • United Airlines Holdings Inc. (UAL) expects its operating margins to be better than before the pandemic here in the fourth quarter, and the airline said demand for both leisure and business travel remains robust. “Despite growing concerns about an economic slowdown, the ongoing COVID recovery trends at United continue to prevail,” said CEO Scott Kirby. Guidance for fourth-quarter profits were 23% above Wall Street’s estimates.
  • American Airlines Group Inc. (AAL) generated record revenue in the third quarter and expects fourth-quarter revenue to exceed 2019 levels (before the pandemic) by 11%-13%. Chief Financial Officer Derek Kerr said, “We continue to believe that 2023 demand for air travel will be robust. We currently see no signs of demand slowing as we move into the new year.”

Airlines have been able to raise fares to deal with higher fuel costs, and the seats continue to be mostly filled. As a result, their stocks have, uh, flown higher over the last month.

A chart showing UAL’s return (+26.64%), AAL’s return (+15.48%), and DAL’s return (+14.65%) from Sept. 23, 2022 to Oct. 24, 2022 (source: YCharts)

We heard from JetBlue Airways Corp. (JBLU) this morning, which posted a quarterly profit for the first time since the pandemic and said it is “confident in the demand backdrop for the year-end holiday peaks.”

And the nation’s biggest carrier, Southwest Airlines Co. (LUV), reports its latest results on Thursday. Expectations are for profits to nearly quadruple over last year with sales growing 33%. The company’s expectations for the end of the year will be closely watched.

Sweet Revenge

The travel turnaround trend finally looks firmly in place. Somewhat surprisingly, this comes in a less-than-ideal environment.

You would not normally expect such growth and optimistic outlooks at a time when consumers and businesses are watching their spending, and jet fuel costs are nearly double what they were a year ago.

There must be something else going on, something that – at the moment, at least – is more powerful than economic concerns. Eric Fry recently identified it in his Investment Report as “revenge,” and it could boost both the travel industry and the market…

“Revenge travel” is one of the newest terms to circulate in the English language, and “revenge investing” may not be far behind…

In fact, the concept might boost the stock market’s fortunes, just like revenge travel has boosted (and continues to boost) the fortunes of the tourism industry.

If you aren’t aware, “revenge travel” refers to the post-COVID phenomenon of folks “taking revenge” on the two-year lockdown by splurging on vacations.

As a frequent traveler, I can attest that the revenge travel craze is getting crazier every day.

The airport terminals that once resembled abandoned warehouses now teem with travelers of all types. The passenger jets that crisscrossed the country with fewer than a dozen passengers each are now so over-booked that they’re turning away dozens of standby passengers at a time.

The masks are now off as well, while the world’s travelers “take revenge” on a global scourge that imprisoned them for the better part of two years.

A similar sentiment is brewing in the financial markets.

For months now, we investors have been taking a beating. No matter how well we bobbed and weaved to avoid the stock market’s punches, it still managed to land enough blows to cause serious pain.

But it’s time for payback. And it’s time to land some blows of our own.

How?

By stepping into the market and buying great stocks on the cheap.

Some of those stocks are in the travel industry, and there are opportunities beyond the airlines. In fact, Eric currently recommends several to his readers, from vacation properties to technology solutions, and more. They have also bumped up recently but remain available at discounted prices.

Enjoy any travel you have coming up soon. Maybe you can pay for it with some nice profits in the travel recovery trend…

Regards,

Dave

On the date of publication, Eric Fry did not have (either directly or indirectly) any positions in the securities mentioned in this article.


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