What happened
Some of the biggest names in airline stocks are taking off on Tuesday. As of 12:12 p.m. ET:
- Discounter Spirit Airlines (SAVE -3.07%) is gaining 3.1%.
- Delta Air Lines (DAL 0.43%) is up 3.3%.
- United Airlines Holdings (UAL 0.17%) is tacking on 3.6%.
- American Airlines Group (AAL -2.06%) is leading the whole sector higher with a 4.8% gain.
Image source: Getty Images.
So what
Switch out Spirit Airlines for Southwest Airlines (which is up a not too shabby 2.4% itself by the way), and you've got yourself almost a mirror image of the four companies that my colleague Lou Whiteman highlighted as "the best airline stocks for 2022" last week. But why are these stocks all up today in the first place?
I see a confluence of three factors helping to lift airline stocks higher.
First and foremost is oil prices, which are dropping today. As I pointed out last week, fuel costs are absolutely key to the profitability of airlines, accounting for anywhere from 20% to 24% of a company's annual expenses. In that regard, the fact that both West Texas Intermediate and Brent crude oil prices are down 3.5% today is unabashedly good news for airlines.
The second bit of good news for airlines today concerns not the cost of fulfilling customer demand, but demand itself. As CNN reported yesterday, airlines are asking the government to drop its mask mandates and COVID-19 test rules for air travelers. In an open letter to the White House, most of the airlines named above, and several others besides, argued that "it is past time to eliminate COVID-era transportation policies," and help life get back to normal.
Making flying easier and less stressful for travelers in this way will naturally boost travelers' interest in flying, and this would be a real boon for the air travel business.
Of course, if helping travelers feel more relaxed about flying is the goal, then continuing to allay concerns about serious symptoms, in the event someone does contract COVID, remains key. And that's why our third bit of good news today is the fact that the Food and Drug Administration has just authorized persons age 50 or over to get a fourth dose (i.e., a second booster) of COVID-19 vaccine from Pfizer or Moderna.
Now what
Will "full vaccination" -- or even taking that second booster -- become a requirement for maskless, test-less travel by air going forward, as some medical experts have suggested?
This remains to be seen, and when it comes to explaining today's stock price moves among the airlines, it's also probably irrelevant. The trends right now are as described above -- cheaper aviation fuel, less onerous travel requirements, and an expanding pantheon of medical treatments to keep COVID risk under control. All three of these elements tend to increase the popularity of air travel, and all three of them are contributing to airline investors' optimism today.
And I have to tell you -- with all four of these airline stocks trading for less than a 10 P/E ratio, I'm feeling pretty optimistic about airline stocks myself.
