Wall Street is taking an upbeat view toward airlines at the start of the new year, and the stocks are responding by gaining altitude. Shares of American Airlines Group and United Airlines Holdings each climbed as much as 6% on Monday, while shares of Delta Air Lines (DAL 0.75%), JetBlue Airways (JBLU 1.10%), and Spirit Airlines (SAVE -0.30%) each climbed nearly 5%.
We know 2020 was a miserable year for the airline industry. While 2021 showed some signs of a recovery, the pandemic is still weighing on the stocks. There's hope 2022 will usher in better days, and that optimism is reflected in Monday's trading.
In a note out Monday, Citi analyst Steve Trent called the omicron variant a "modest" risk to the sector, saying, "This is not 2020" all over again. Passenger counts plummeted in the early days of the pandemic, causing airlines to borrow money to stay afloat and putting the entire industry in crisis.
Conor Cunningham of MKM Partners offered a similar upbeat message in a separate note, saying he sees clearing skies up ahead despite the near-term pressures caused by omicron.
Trent called Frontier Airlines (ULCC 0.46%) and Delta his top picks heading into 2022. Cunningham, meanwhile, called Delta his top pick and Alaska Air Group (ALK 1.09%) an honorable mention.
There's reason for optimism for all airline investors. Cunningham expects international and corporate business to make a surprise recovery in 2022, which would impact not just Delta, but American and United, as well. If omicron fades quickly and domestic-travel flows are allowed to continue, discounters like Spirit and JetBlue should benefit from strong spring-break and summer travel seasons.
We're headed in the right direction, but it's going to take time to get there. Investors with a long-enough time horizon have every reason to be optimistic, but as we've learned over the last few years, the recovery is full of turbulence. Even if the analysts are right about omicron, we can't say for sure that there won't be future variants that cause fresh concerns in the months to come.
I'm bullish long term on travel demand, and Delta is a solid choice as a top pick. The airline was arguably the best-run U.S. carrier prior to the pandemic and has a good mix of international and domestic routes and a more flexible labor structure to help it benefit from an eventual recovery.
But investors should be mindful that this is still a multiyear process, and we're not out of the woods yet. It remains a dangerous time to be invested in airlines.