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Why Travel Stocks Are Higher Today

By Lou Whiteman – Aug 24, 2021 at 4:25PM

Key Points

  • A broad range of travel and airline stocks traded up Tuesday following positive commentary concerning the pandemic.
  • New data suggests the delta variant surge has peaked, implying new cases might be starting to trend down.
  • Travel stocks have also benefitted from the FDA granting final approval to the first COVID-19 vaccine.

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Investors are feeling good about progress in fighting the pandemic.

What happened

The so-called "reopening trade" took flight on Tuesday, with headlines suggesting the latest pandemic surge had peaked in a number of key states and that optimism continues about the vaccine rollout. Booking Holdings (BKNG 1.22%) shares rallied 6% higher, and among airline stocks shares of American Airlines Group (AAL -0.07%), Southwest Airlines (LUV -0.82%), United Airlines Holdings (UAL), and Spirit Airlines (SAVE -0.65%) each climbed 5%.

So what

Airline stocks and other travel companies have been stuck in a holding pattern of late. The sector was hit hard last year when the pandemic brought travel demand to a halt, but had rallied in early 2021 on increasing demand thanks to vaccines.

That rally has since faded. The delta variant has led to an uptick in new COVID-19 cases, which could be a threat to fall travel. And with most of the demand we have seen this summer tied to leisure and not business travel, there is some concern that the upcoming Labor Day weekend could lead to a severe drop off in passengers.

View through the window at an airport.

Image source: Getty Images.

Markets on Tuesday rallied on talk that COVID-19, in the words of one Wall Street observer, appears "to be rolling over" in 18 U.S. states, meaning the worst of the surge could soon be behind us. That helped continue a rally fueled by the Food and Drug Administration's decision earlier in the week to grant full approval to the Pfizer vaccine, opening the way for more employers to mandate the jabs.

Although travel companies have stabilized, the sector can't really take flight again until the pandemic is fully under control. Southwest and Spirit are both known for catering to leisure travelers, and should be among the beneficiaries if tourism travel continues into the fall. Similarly, Booking operates sites including Booking.com, Priceline.com, Kayak, and OpenTable that lean heavily on vacationers.

American and United need a return of business travel to really get healthy, but both airlines have worked to revamp their schedules to take advantage of spring and summer demand for travel to sun-filled destinations.

Now what

As we've seen time and time again with the pandemic, it is dangerous to draw any long-term conclusions based on a few days' worth of data. The airlines and the companies that rely on them for revenue have been flying through turbulence for nearly 18 months now due to COVID-19, and investors would be wise to keep their seatbelts fastened.

That said, the worst does appear to be behind us. While there might be a need for some local travel restrictions due to the pandemic, there is no indication yet that people are avoiding traveling for the holidays, which should provide another boost to revenue in the months to come.

It's not likely to be straight up from here, but for those with a long enough time horizon the travel sector does appear to be moving in the right direction. Among airlines, Southwest and Spirit, with their relatively low cost structures, appear likely near-term winners, and Booking should give investors a way to benefit from a slow but steady return to normal without having to pick winners and losers in the aviation business.

Lou Whiteman owns shares of Booking Holdings and Spirit Airlines. The Motley Fool owns shares of and recommends Booking Holdings and Spirit Airlines. The Motley Fool recommends Southwest Airlines. The Motley Fool has a disclosure policy.

Stocks Mentioned

Southwest Airlines Stock Quote
Southwest Airlines
LUV
$39.75 (-0.82%) $0.33
United Airlines Holdings Stock Quote
United Airlines Holdings
UAL
$43.89 (%)
Booking Stock Quote
Booking
BKNG
$2,085.44 (1.22%) $25.15
Spirit Airlines Stock Quote
Spirit Airlines
SAVE
$21.29 (-0.65%) $0.14
American Airlines Group Stock Quote
American Airlines Group
AAL
$13.97 (-0.07%) $0.01

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

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