What happened
Southwest Airlines (LUV -0.83%) shareholders beat the market on Wednesday morning as the stock gained 6% by 10:45 a.m. ET compared to a 0.3% uptick in the wider S&P 500. The rally added to impressive returns for the airline stock, which is in positive territory so far in 2022 even as the market is down nearly 8%.
It was sparked by good operating news from rival Delta Airlines (DAL -1.06%), whose stock was also rising early Wednesday.
Image source: Getty Images.
So what
Delta announced before the market opened that the company returned to profitability in March as the pandemic threat faded and travel demand picked up. Sales trends "accelerated through the quarter," management said in a press release, capped off by a strong spring break travel season.
Delta notably achieved solid adjusted profitability and cash flow despite rising fuel prices.
Southwest Airlines' stock benefited from this good operating news as investors gained confidence about a potentially strong summer season for the airline industry.
Now what
Southwest will announce its latest operating results on April 28. Management said back in late January that it expected the company to return to profitability in the first quarter, and Delta's results make that recovery seem likely. The airline might even modestly outperform the outlook it initially issues, calling for between 10% and 15% lower operating revenue compared to the same period in 2019.
The big question, though, is whether there will be the sharp spike in travel demand that industry observers have been predicting for several months, given the unusually weak spending in that sector through the past two years.
If that rebound occurs, pent-up demand might help Southwest do more than simply return to modest profitability in 2022. That prospect has airline stock investors feeling more lift today.
