Thursday is a miserable day on Wall Street, and airline stocks are caught up in the turbulence. Shares of United Airlines Holdings (UAL -0.02%), American Airlines Group (AAL -0.85%), JetBlue Airways (JBLU 0.88%), and Spirit Airlines (SAVE 2.61%) all traded down as much as 5% on the day, and shares of Delta Air Lines (DAL 0.14%) and Southwest Airlines (LUV -0.55%) weren't far behind.
A day after stocks rallied after the Federal Reserve hiked rates, markets on Thursday gave all of those gains back. The Dow Jones Industrial Average fell as much as 1,000 points midday as investors seemingly reconsidered the challenge the Fed faces in trying to control inflation without sending the economy into a recession.
For airline stocks, the thought of a slowdown could not come at a worse time. The industry was hit hard by the pandemic, and had hoped to use the 2022 travel season to replenish its cash reserves and repair bruised balance sheets. Based on airline commentary during earnings season, demand seems to be holding up despite inflationary pressures, but the prospect of a recession so soon after the pandemic-related slowdown is a reason for investors to be cautious about buying into the sector.
Spirit Airlines is likely also trading on its earnings report released Wednesday night. Spirit lost $1.60 per share in the quarter, $0.02 more than estimates, but its $967.3 million in revenue came in a bit above analyst expectations. Spirit also reiterated its commitment to its deal to be acquired by Frontier Group Holdings, rejecting a competing bid from JetBlue.
Spirit said it expects to turn a profit in the second half.
There wasn't a lot of company-specific news for the rest of the airlines, although investors might be digesting reports predicting flight delays and cancellations this summer in Florida. A combination of typical weather delays, coupled with an uptick in space launches and use of private jets, are expected to make the skies over the Sunshine State more congested in the months to come. Airlines can ill afford issues getting in and out of key Florida vacation markets, which can ripple through the network if not quickly addressed.
For now, the airlines appear to be in a holding pattern. Conditions have improved significantly since the early days of the pandemic, and the airlines so far have seen demand strong enough to pass on higher costs to consumers in the form of higher fares. But with COVID-19 cases once again on the rise in some areas, and the concerns about what the Fed's actions will mean for the economy, a lot of uncertainty remains.
The airlines will likely need at least another year to fully recover from the pandemic, and that's if all goes right. Investors need not rush into these shares anytime soon.
For those willing to buckle up and ride through the turbulence, names like Delta and Southwest appear to be the best options. There is great potential in this sector for long-term investors, but it is hard to see a way for the airlines to quickly gain altitude from here.