Please ensure Javascript is enabled for purposes of website accessibility

Why Airline Shares Are Down Today

By Lou Whiteman - Mar 4, 2021 at 3:24PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

A rally in aviation shares takes a break.

What happened

The airlines ran into a patch of turbulence on Thursday, zapping some of the momentum the sector has enjoyed in recent weeks. It's too soon to declare the "reopening trade" over, but it wasn't a good day to be investing based on expectations that COVID-19 would soon be in the rearview mirror.

Leading the way downward were shares of American Airlines Group (AAL), United Airlines Holdings (UAL), JetBlue Airways (JBLU), and Spirit Airlines (SAVE), with each stock down more than 5% for the day.

So what

For all the problems airlines had in 2020, the companies have been flying high so far this year. All four of these stocks are up at least 20% year to date, even with Thursday's sell-off, and Spirit is up nearly 40%.

A plane landing at night.

Image source: Getty Images.

The pandemic was the reason for last year's declines, and hope that vaccines will allow us to return to normal in the months to come has been pushing the stocks higher. News from the White House that all American adults should have access to a vaccine in time for the summer travel season had airline stocks gaining ground yesterday.

Airlines seemed to get caught up in the broader selling downdraft on Thursday, with the Dow Jones Industrial Average off by more than 300 points as of 3 p.m. EST.

Now what

There might not have been much specific news from the industry to trigger Thursday's sell-off, but it is fair to ask the question of whether the industry has come too far too fast after posting such solid gains in the first two months of the year.

It seems likely that the summer vacation season might come in much better than some had feared only a few months ago. There appears to be significant pent-up demand for leisure travel, and if the vaccine is widespread, expect flights to typical tourist destinations to be full by mid-year. Spirit, with its industry-low cost structure, is set up particularly well to take advantage, and American, United, and JetBlue are all rearranging their route maps to better cater to expected demand.

The fledgling recovery should also eliminate any lingering fears that airlines including American and United will face a liquidity crisis, a relief to investors.

But the path forward is not clear for airlines, especially those like United and American that rely heavily on business and international travel. Those segments of the industry are likely to take much longer to return. Airlines have also taken on significant debt over the past year which will have to be paid off when revenue returns.

I can justify the recovery in the shares, but it is hard to say for sure most of these stocks still have a lot of room to run. Today's decline in airline stocks is not nearly as frightening as what we were experiencing in March 2020, and I don't think it is nearly the buying opportunity, either.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

JetBlue Airways Corporation Stock Quote
JetBlue Airways Corporation
JBLU
United Airlines Holdings, Inc. Stock Quote
United Airlines Holdings, Inc.
UAL
Spirit Airlines, Inc. Stock Quote
Spirit Airlines, Inc.
SAVE
American Airlines Group Inc. Stock Quote
American Airlines Group Inc.
AAL

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
332%
 
S&P 500 Returns
118%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/27/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.