The stock market has been under pressure for months, but Tuesday brought some respite for hard-hit investors. The Nasdaq Composite (^IXIC -0.26%) rose nearly 2% as of 11 a.m. ET, and while it remains far below its all-time highs, some encouraging signs seemed to turn market sentiment back in a positive direction.
Airline stocks did particularly well, with major companies like American Airlines Group (AAL -1.00%) and United Airlines Holdings (UAL -0.33%) climbing 10% or more Tuesday morning. Airlines across the industry announced some favorable numbers and outlooks that made shareholders feel more comfortable about the prospects for travel in the near future.
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American faces a less bad future
American Airlines provided updated financial and operational guidance for the first quarter of 2022. Its figures presented a mixed picture that nevertheless gave investors more confidence.
On the positive side, some elements of American Airlines' operations won't be as bad as initially feared. The company now believes its first-quarter revenue will drop 17% from where it was three years ago, before the beginning of the COVID-19 pandemic. That leaves plenty of room before American has made a full recovery, but it's better than the 20% to 22% drop that the airline had previously anticipated .
However, some other aspects were more troubling. Rising crude oil prices have pushed the company's expectations for first-quarter jet fuel costs up sharply to between $2.73 and $2.78 per gallon. That increase, along with lower-than-expected capacity, should push cost per available seat mile up 11% to 13%, higher than its previous estimates for an 8% to 10% rise. With no hedging arrangements in place currently, costs for the remainder of the year are subject to significant volatility.
United sings a similar song
United similarly released its financial outlook update, which also included some numbers for the full 2022 year. Overall, the airline tried to point to encouraging travel demand as COVID-19 case counts have fallen in the U.S., but its numbers weren't as strong as American's in relation to its past guidance.
On one hand, United does expect to see slightly better revenue performance in the first quarter than it previously thought. The airline sees operating revenue at the upper end of its previous guidance for a 20% to 25% drop in comparison to pre-pandemic levels in the first quarter of 2019. United also sees positive adjusted pre-tax income for the second quarter of 2022.
However, additional flight cancellations due to geopolitical conditions have United expecting capacity for the quarter to fall 19%, worse than the 16% to 18% guidance it previously gave. Costs will rise about 18% from three years ago, with fuel prices expected to average $2.99 per gallon in the first quarter and $3.50 per gallon for the second quarter. All of those factors will likely combine to send full-year capacity figures down high single-digit percentages in 2022 compared to 2019, in United's view.
Flying higher?
Some other airline stocks saw similar patterns. JetBlue Airways (JBLU 0.33%) now sees revenue being down just 6% to 9% from 2019 levels, better than its previous 11% to 16% estimate. Delta Air Lines (DAL -1.41%) sees revenue recovering to down 22% from its pre-pandemic levels, improving from past guidance for a 24% to 28% reduction. And Southwest Airlines (LUV 0.76%) now sees revenue down just 8% to 10%, better than its initial 10% to 15% projection.
There's still considerable uncertainty, especially given the rise of another omicron subvariant that could be more transmissible and cause more dramatic health effects. Yet investors appear to be tired of the pessimism surrounding the airline industry. At least for today, airline shareholders are looking at the potential bright side after years of tough times.
