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Why Airline Stocks Are Higher Today

By Lou Whiteman - Updated Mar 25, 2021 at 3:44PM

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One large carrier is adding flights ahead of expected demand growth.

What happened

President Joe Biden is getting more aggressive about vaccinations, airlines are building back their schedules, and aviation stocks are on the move higher as a result.

Shares of Spirit Airlines (SAVE 1.95%) led the way on Thursday, up as much as 7%, with shares of United Airlines Holdings (UAL 2.78%) and American Airlines Group (AAL 3.01%) each up 5%.

So what

Airline investors who watched the stocks struggle through a miserable 2020 due to the pandemic are growing more excited about 2021, seemingly by the day. There appears to be pent-up demand for vacation travel. If the population is vaccinated and allowed to fly this summer, there are likely to be full flights.

A plane flies above the clouds.

Image source: Getty Images.

President Biden on Thursday provided a fresh dose of optimism on vaccines, saying he now hopes to have 200 million vaccinations take place in his first 100 days in office.

United, meanwhile, is adding flights in anticipation of strong demand. The airline on Thursday announced a May schedule that adds 26 new nonstop routes between Midwest cities and vacation destinations. It is also resuming service on more than 20 domestic routes, and loading up flights to Latin America.

"In the past few weeks, we have seen the strongest flight bookings since the start of the pandemic," United vice president Ankit Gupta said in a statement. "As we rebuild our schedule to meet that demand, adding in seasonal point-to-point flying is just one of the ways we are finding opportunities to add new and exciting service."

If United is seeing stronger demand, it is highly likely other airlines are seeing it, too. That had investors buying into the stocks on Thursday.

Now what

The airlines are back, but it remains to be seen how high they can climb. Spirit has industry-low costs and, unlike United, doesn't need to alter its route network to cater to tourists. If demand emerges as expected, Spirit could be among the first airlines to fully recover, and investors have bid the shares up as a result.

For United and American, the path forward will likely be much slower. Those airlines do best when international and business travel is thriving, and those segments of the market figure to take much longer than leisure to get back to normal. The danger is removed from these stocks, and the odds of a failure are low, but investors are likely still in for some turbulence up ahead.

Given that airline valuations are actually now above pre-pandemic figures, it doesn't feel like the best time to buy in. But for long-term shareholders, the industry is clearly headed in the right direction.

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Stocks Mentioned

Spirit Airlines, Inc. Stock Quote
Spirit Airlines, Inc.
$19.36 (1.95%) $0.37
United Airlines Holdings, Inc. Stock Quote
United Airlines Holdings, Inc.
$44.76 (2.78%) $1.21
American Airlines Group Inc. Stock Quote
American Airlines Group Inc.
$16.75 (3.01%) $0.49

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

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