On Tuesday, a Wall Street analyst voiced a bullish opinion on the airline sector, saying that the group is making the transition from "COVID losers to reopening winners." The airlines are gaining altitude, as a result, with a collection of carriers including American Airlines Group (AAL 2.46%), United Airlines Holdings (UAL 0.67%), Delta Air Lines (DAL 0.79%), Southwest Airlines, JetBlue Airways (JBLU 2.70%), Frontier Group Holdings (ULCC 3.65%), and Spirit Airlines (SAVE -2.60%) all up at least 5% in midday trading.
Airlines faced a difficult journey through the pandemic, as travel demand fell to near zero. More than two years after the initial lockdowns, the sector is still trying to regain its footing, with some analysts predicting that business won't get back to normal until the second half of the decade.
But as the recovery begins to take hold, people are beginning to see opportunities. On Tuesday, Wolfe Research analyst Scott Group assumed coverage of the airlines with a market-overweight sector rating. Frontier, American, and JetBlue were all upgraded, while United was downgraded to underperform.
Group wrote that higher jet-fuel prices could weigh on earnings this year, but the general trend for the sector is positive. Americans are expected to get out and travel this summer, which should create strong demand for air service and return much of the industry to profitability.
The airlines are making moves that suggest the worst of the crisis is behind them. Last week, Frontier and Spirit announced plans to combine in a deal worth more than $6 billion. JetBlue also provided a fresh bit of evidence to suggest the outlook is improving. The company announced it would exercise its option to buy an additional 30 Airbus planes in the years to come.
The worst may be over, but we still don't know how long the recovery will take. A fresh variant or some other new twist to the pandemic could derail summer travel plans. As long as businesses are dragging their feet on returning to the office, more lucrative corporate travel is likely to remain depressed.
Investors are likely safe buying in today, but they also could be in for a long wait. For those willing to strap in for the long journey and deal with any unexpected turbulence, Delta looks like the best pick from this group. The company is well run, has labor costs more under control than some of its rivals, and sports a relatively healthy balance sheet. Frontier and Spirit look intriguing post-merger, but airline deals take time to integrate and can be fraught with disruption, so there's no need to jump onboard right away.