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Why Airline Stocks Are Soaring Today

By Lou Whiteman – Jan 13, 2022 at 12:54PM

Key Points

  • Investors went into airline earnings season eager to hear commentary about what lies ahead in 2022 after a miserable 2020 and uneven 2021.
  • Delta delivered stronger-than-expected earnings and said it expects to be solidly profitable through most of the new year.
  • Delta expects strong summer vacation demand and a return of business travelers as the year goes on.

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Delta provided an uplifting forecast for the entire industry.

What happened

On Thursday, Delta Air Lines (DAL 1.93%) kicked off airline earnings season on a high note and took the rest of the sector along for the ride. Shares of Delta, American Airlines Group (AAL 1.49%), United Airlines Holdings (UAL 0.55%), JetBlue Airways (JBLU 1.97%), and Spirit Airlines (SAVE 0.12%) all climbed as much as 5% on Thursday morning on hope that a recovery is at hand.

So what

Airline stocks endured a miserable 2020 due to the pandemic, and 2021 was choppy as investors weighed signs of pent-up demand against the threat of new variants and renewed travel restrictions. Investors are eager to see what the companies have to say about 2022, and Delta on Thursday provided reason for optimism.

A Delta plane takes flight.

Image source: Delta Air Lines.

The airline earned $0.22 per share in the fourth quarter on revenue of $9.47 billion, topping consensus estimates for $0.14 per share in earnings on sales of $9.2 billion. CEO Ed Bastian in a statement called 2021 "a year like no other for Delta," highlighting "significant progress in our recovery supported by growing brand preference, enabling us to be the only major U.S. airline to deliver profitability across the second half of the year."

The airline expects to fall back into a loss in the first quarter due to the omicron variant and weather issues, but Bastian said, "We are confident in a strong spring and summer travel season with significant pent-up demand for consumer and business travel."

Delta said it expects a "healthy" profit in the final three quarters of 2022, which should translate to a "meaningful" profit for the full year. Delta ended the quarter with more than $14 billion in total liquidity and reduced its total debt by $6 billion during the year.

Although the results are Delta-specific, it is not hard to see why investors in other airlines are encouraged. The pandemic is an industrywide issue and not company specific, and Delta's commentary on demand and its ability to turn a profit as the year goes on is good news for all carriers.

Now what

We're on our way toward a recovery, but it will take time. The pandemic is not over, and if we have learned anything over the past year, it is to expect the unexpected. While the airlines appear to be headed in the right direction, a new variant could delay the rebound.

For those with a long-enough time horizon, Delta appears to be one of the top choices. The airline was a top operator before the pandemic, and as Bastian notes, it appears to have gained some market share thanks to some of its actions to protect customers, at the cost of added revenue, by refusing to sell middle seats through 2020.

United and American will get there, but American in particular has a higher debt load and will likely need longer than its rivals to clean up its balance sheet. Spirit and JetBlue, as discounters, are well-positioned to benefit if Bastian's hoped-for summer vacation rally occurs.

There is opportunity in the airline sector, but investors would be wise to keep their seatbelts fastened.

Lou Whiteman owns Delta Air Lines and Spirit Airlines. The Motley Fool owns and recommends Spirit Airlines. The Motley Fool recommends Delta Air Lines and JetBlue Airways. The Motley Fool has a disclosure policy.

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