What happened
On Tuesday morning, airline investors were greeted with lower oil prices and positive commentary from the leadership teams of several different carriers. As a result, airline stocks are getting a boost.
Shares of Delta Air Lines (DAL 0.08%), United Airlines Holdings (UAL -1.25%), and American Airlines Group (AAL -1.77%) all traded up by as much as 10%, while Southwest Airlines (LUV -0.84%), JetBlue Airways (JBLU 1.05%), and Spirit Airlines (SAVE) were all up 6% or more.
Image source: Getty Images.
So what
Airline investors had gone into 2022 hoping for a year of recovery after a prolonged pandemic-induced revenue dry spell, but the war in Ukraine and its impact on already-high oil prices have led to a sell-off in the sector in recent weeks. But on Tuesday, oil prices were heading lower. And several airlines offered updated guidance that reassured investors that their recoveries are still on track.
Many major airlines are presenting at an industry conference Tuesday, and several filed new regulatory disclosures with the highlights of their presentations. While the industry was, as expected, hit hard by higher fuel costs in recent weeks, there is still a lot to be excited about.
Delta raised its revenue outlook for the current quarter, said it expects positive free cash flow, and also expects to reduce its adjusted net debt to $15 billion by 2024. United said demand from business travelers is accelerating, and asserted that the strong revenue environment should give it positive pre-tax income by the second quarter.
American echoed United's comments on business travel, and said it now predicts its first-quarter revenue will be 17% lower than it booked in Q1 2019, prior to the pandemic. Previously, American had forecast revenue would be between 20% and 22% weaker compared to 2019. And Southwest said that it expects to book a first-quarter loss, but a return to profitability for the remaining three quarters of the year, with capacity in the second half of 2022 that will be flat compared to 2019.
Among the smaller airlines, JetBlue said it expects its first-quarter revenue will be down 6% to 9% compared to Q1 2019, an improvement over its previous guidance for revenue to be down by 11% to 16%. As of this writing, Spirit had not filed a new statement with the Securities and Exchange Commission, but given that positive sentiments were widespread at the conference, investors appear to be assuming the best for the entire industry.
Now what
Though they were up on the day as of early afternoon, these airline stocks are still down by between 5% and 14% since Feb. 24. Even if current events don't stall the industry's recovery, investors recently got fresh reminders that there are many things that could delay it.
Even the news of lower oil prices is likely to be met with only cautious optimism by the industry since that price drop is in part due to China imposing fresh restrictions on regions of that country that are home to tens of millions of people (and key manufacturing centers) in an effort to stem a record new surge of COVID-19 cases.
At best, the airlines still face a multiyear recovery, and if history is any guide, we can expect more turbulence and down days ahead as the geopolitical situation and the pandemic continue to play out. For investors who are willing to ride out the rough patch, Southwest and Delta are the best bets. But given the uncertainties, there is no reason to chase Tuesday's rally.
