What happened
Wall Street was in sell mode on Tuesday, and some of the stocks and sectors that have done best so far in 2021 were under the most pressure. That includes airlines, with American Airlines Group (AAL 0.44%), United Airlines Holdings (UAL 1.30%), and Delta Air Lines (DAL 0.01%) all trading down as much as 5%.
So what
After a miserable 2020, airline stocks have been soaring higher through much of 2021. After a lost year due to the pandemic, there was optimism that there'd be significant pent-up travel demand as the vaccine rollout gained steam. This has given a lift to the stocks, with American up 34% year to date and United up 20%.
Image source: Getty Images.
But there wasn't much optimism among investors on Tuesday. Stocks were weighed down by Treasury Secretary Janet Yellen noting that interest rates might need to rise in order to prevent the economy from overheating.
For airlines trying to pay down the debt they took on last year during the pandemic, a series of rate hikes could cut twice: Not only would it make their borrowings more expensive and raise interest costs, but the carriers would also likely benefit from that overheating economy and robust ticket demand that the Fed would be trying to combat.
Now what
Of these three airlines, Delta is the most intriguing as a potential buy right now. Not only has the stock lagged American and United in 2021, but it's one of the few airlines that's not worth more now than it was pre-pandemic when debt is factored in along with equity prices.
Delta pre-pandemic was one of the industry's top innovators, and it continues to seek ways to transform its business. Earlier this week, it reached an agreement with ticket-distribution company Sabre to revamp sales and feature revenue enhancements like extra leg room.
Delta has taken some hits this year for issuing a relatively benign outlook, even as others have been more bullish about the summer travel season. On its first-quarter call, the airline warned that while demand is coming back, pricing is not.
It'll take time to see how fast a recovery occurs and how smooth the journey to a recovery will be, but for long-term investors, Delta deserves a look.
