Why Airline Stocks Are Up Today?

Airline stocks got a lift from positive analyst comments on the sector heading into 2022 after the omicron decline. While the potential for a turnaround is still unknown, investors should be aware that any recovery will take time.

What Happened to Airline Stocks?

On Monday, shares of major airlines such as American Airlines Group (AAL) and United Airlines (UAL) gained 6%. Other stocks such as Delta Air Lines and Southwest Airlines also moved up.

According to an analyst, the airline sector is in a great time to buy right now. During Friday’s session, shares of several airlines, including Delta Air Lines, American Airlines, and Spirit Airlines, shot up.

Stock Market’s Optimism

The stock market’s optimism for the airline industry is largely based on the hopes that 2022 will bring better days.

Airline stocks suffered in 2020 due to the pandemic, which caused investors to lose their optimism. Sentiment about the industry then worsened in 2021.

Bank of America’s Andrew Diadora believes that the sentiment toward the airlines is about to turn, especially since the omicron variant is approaching its peak. He noted that this could allow a healthy consumer and a return of corporate travellers.

For his recommendation, Doora favours Delta over American Airlines and UAL. He also likes the stocks of discounters such as Southwest Airlines and Air Canada.

While not naming Spirit Airlines, Doora mentioned that the low-cost carrier is very popular among investors. While it has its own issues with COVID-19, Azul is expected to benefit from the recovery of the industry as it tackles the outbreak.

Citi’s Steve Trent said that the uptick in passenger counts during the early days of the pandemic posed a modest risk to the sector.

MKM Partners’ Conor Cunningham also noted that the airlines can still weather the storm caused by the omicron decline.

Both Trent and Cunningham noted that Delta and Frontier Airlines are their top picks for 2022 based on their current valuations.

For airline investors, the potential recovery in 2022 is good news. Cunningham noted that international and corporate travel will start to recover in 2022 after the omicron decline.

How Much Time Airline will Take to Recover?

Despite the optimism surrounding the industry, it’s going to take a long time for airlines to recover from the impact of the pandemic. Even if the airlines are right about the omicron decline, there are still risks to the recovery.

Delta is a solid pick for 2022, as it was the best-run US carrier before the pandemic. Its flexible labour structure and international reach will help it weather the storm.

Despite the optimism surrounding the industry, it is still a risky time to invest in airlines. Investors should also be aware that the recovery is still a long process.

Although the worst of the pandemic is over, conditions are still not yet normal. Even if the recovery is on track, it will still take a long time to reach full recovery.

Delta is a great buy for investors who are waiting for the recovery. However, they should also realize that stocks can still fluctuate due to unforeseen factors.

The team at The Motley Fool Stock Advisor can always be relied on for stock tips. Over the years, they have tripled the market.

During their latest update, the team revealed the 10 best stocks to buy right now. Not only Delta Air Lines was not one of them, but it’s also a great buy.

Analysts at the bank upgraded their ratings on several airlines, including Delta Air Lines and Frontier Group. They noted that the recovery from the pandemic could help airlines.

Related: Are Airline Pilots in Demand?

Which Airline Stocks Are Rising?

Airline stocks got a lift from positive analyst comments on the sector heading into 2022 after the omicron decline.

Delta Air Lines Inc. DAL, +3.82% is our preferred stock over its network peers due to its strong balance sheet and cheaper valuation, they said.

American Airlines and Spirit Airline shares were higher after receiving upgrades from analysts.

Evercore ISI analyst Duane Pfennerwerth upgraded shares of Spirit Airlines and American Airlines, citing recent selloffs in the stocks.

Pfennerwerth raised his target on American Airlines to $17 from $15 and on Spirit to $28 from $25, citing the company’s recent decline.

The stock market gained after Dr Anthony Fauci, the chief medical adviser of US Senator Joe Biden, said that the Omicron incident did not pose a threat to travel.

Fauci said that the incident did not look like it would have a great degree of severity. However, he added that it would be very cautious to make a determination on the seriousness of the situation.

Evercore upgraded American Airlines to Outperform from Underperform, while Spirit Airlines gained almost 10%.

Pfennigwerth noted that American Airlines’ net debt should eventually decline as long as its cash generation improves.

Evercore’s increased confidence in American Airlines’ ability to maintain a tight supply-demand balance and improve its margins could help the company’s financial position.

Spirit Airlines is expected to maintain a conservative approach to its staffing levels in the near term due to the headwinds caused by the summer season.

During the holiday season, the number of people passing through the TSA checkpoints reached a pandemic record.

American Airlines’ third-quarter loss was narrower than the analyst’s expectations. Airline stocks set to trade higher in 2022, B. of A. says

The U.S. Global Jets ETF JETS has lost 0.6% in the last 12 months, compared with gains of around 25% for the S&P 500.

Among low-cost carriers, they upgraded Allegiant Travel Company to neutral from negative. They noted that the company’s cost risks are increasing due to the Boeing Co.’s order for the 737 Max aircraft.

It kept Alaska Air Group Inc. as its preferred stock due to its cost-focused strategy and strong balance sheet.

It noted that the recovery from the recession will be slow, as companies continue to get used to operating with less travel.

As the recovery proceeds, airlines will need to rebuild their capacity to drive down costs and prevent margins from declining further.

The value of investments can go down as well as up, so it’s important to make sure that you’re getting back less than you invest.

It’s been a while since we’ve seen a return to normality, and with summer just around the corner, airlines are getting ready to promote their summer deals. One example of this is the campaign of Ryanair, which encourages people to book their vacations now.

It’s been a rough 10 months for the airlines, with many of them suffering from the effects of the SARS-CoV-2 virus. Their only hope for respite is the launch of the Coronavirus vaccines.

According to EasyJet, their bookings for the summer are up 250% compared to last year. The company attributed the rise to the pent up demand, as people have been able to travel much faster since the outbreak eased.

The rise in easyJet’s share price has been widely attributed to Lundgren’s optimism. Other airlines, including British Airways and Ryanair, have also gained.

In November, when Pfizer announced that it had developed a vaccine against the Coronavirus, easyJet’s share price jumped 35%. It has almost mirrored the rise in the stock price of other airlines since the announcement.

Although the UK’s vaccination program has been successful, countries may still keep airports closed until their own populations are protected. Back to normality will still be a bit challenging.

Related: Why Airline Stocks Are Falling?

Outbreak Effect On Stocks

Although it’s still not clear that the outbreak will end anytime soon, it seems that airlines are still going to be affected by the virus.

The outbreak has also opened the door to more complex questions. What happens to the stocks that performed well during the previous year?

Take the tech stocks, which have been performing exceptionally due to their sustained growth and despite the ups and downs of the economy. Over the years, these stocks have outpaced the value stocks, which are typically more volatile.

The excess amount of stocks that have performed well over the past years has become unsustainable. Should the successful launch of vaccines make stocks more attractive again, it could pose a bit of a risk for fund managers and investors.

Now, more than ever, it’s important to tread carefully and prepare for all eventualities. It’s also important to make sure that your portfolio is diversified enough to handle any unforeseen events.

Related: Are Airline Prices Going Up?