4 Airline Stocks To Watch in 2022

San Diego, United States – April 13, 2019: Southwest Airlines Boeing 737-700 airplane at San Diego airport (SAN) in the United States.
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Airlines lost a lot of money in 2020, with earnings down 60% from 2019, pre-COVID, according to the International Air Transport Association. And it was still struggling to recover at the end of 2021. Management consulting firm McKinsey & Company predicted that recovery will be gradual and that the airline industry won’t return to 2019 levels until 2024.

A Burgeoning Recovery Defined by Unknowns

Several factors stand to influence the timing and extent of the airline industry’s recovery.

Recovery Factors

  • The continuing effects of the omicron variant of the coronavirus on travel
  • Whether new variants of coronavirus emerge in Europe and elsewhere that become a factor in the U.S.
  • What happens with business travel, since many companies anticipate that remote work is here to stay in some form and travel will be reduced moving forward
  • The speed at which leisure travel picks up
  • How airlines grapple with their post-pandemic debt levels and what that will do to ticket prices and purchasing volumes. COVID-19 had saddled airlines with $340 billion worth of debt by September 2021, according to Bloomberg, and airlines are hardly in the clear now.
  • The extent to which supply can keep pace with demand amid staffing shortages
  • How operating costs land as airlines address maintenance needs and pay more for fuel
  • Whether the government intervenes

Investors Are Feeling Optimistic as Airlines Express Caution

Although airline security screenings — a measure of how many passengers are flying — are still well below pre-pandemic levels, screenings more than doubled from September 2020 to September 2021. Increased demand for summer travel drove airline stocks up earlier this year, with American Airlines up 45.71% year over year and Delta, Southwest and United all up over 20% year over year to that point. American also saw a robust year-to-date gain of 20.16% as of September 2021.

That said, the rally that drove stocks’ gains since has cooled, leaving Southwest down over 6% as 2021 drew to a close and United and Delta even with their January 2021 prices.

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American, Southwest and United tried to temper expectations with a Sept. 9, 2021 statement warning of weakening demand due to the delta variant.And analysts predicted that rising interest rates and fuel costs could affect airline stocks in the longer term.

Despite the relatively gloomy outlook on what many thought would be a consistent recovery for air travel, airline stocks closed up following the airlines’ statement, indicating that investors were still optimistic.

Coming into 2022, the industry is experiencing further woes as widespread outbreaks of the omicron variant exacerbate labor shortages and force the cancellation of thousands of flights during peak holiday travel season.

It remains to be seen whether investors’ optimism will hold out amid these latest challenges, but considering Americans’ reliance on air travel, it seems likely that patience will pay off in the long run.

4 Airline Stocks To Watch

Before investing in airline stocks, you’ll want to take a closer look to determine whether the current enthusiasm over them is warranted. Here’s what you need to know about four stocks you might consider.

1. American Airlines Group Inc. (AAL)

Buy, Sell or Hold? Hold

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Pros: American returned to profit in 2021 as demand for summer travel surged. Revenue, while down from the same quarter in 2019, beat analysts’ expectations and represented the smallest loss since the pandemic began, according to a note from CEO Doug Parker. Despite holiday flight cancellations, the stock ended the year up 13.95%.

Cons: Although American reported a significant revenue gain during the first three quarters of 2021, revenue was still significantly lower even in the third quarter of 2021 than the same quarter in 2019.

2. Delta Air Lines Inc. (DAL)

Buy, Sell or Hold? Buy

Pros: Delta said in mid-December 2021 that it expects to post an annual profit in 2022, CNBC reported.

Delta reported in 2021 that spending on its co-branded credit cards is now up from pre-pandemic levels.

Cons: In addition to pandemic-related revenue loss and rising fuel costs, Delta carries significant debt from loans it took to ride out the pandemic.

3. Southwest Airlines Co. (LUV)

Buy, Sell or Hold? Buy

Pros: Southwest’s reputation as one of the best-run airlines could settle the nerves of worried investors. And as a low-cost carrier known for its excellent customer service, Southwest might be the first choice for budget-conscious travelers as the nation’s economic recovery continues.

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Southwest was profitable in the third quarter of 2021, albeit with a significant boost from government payroll protection.

Cons: Staffing shortages exacerbated weather and air traffic control problems in October 2021, forcing Southwest to cancel over two thousand flights at a cost of $75 million, according to CNBC – even before the industry-wide holiday cancellations resulting from omicron. And although the company announced in September 2021 that it would be hiring 10,000 workers through 2022, a month later it asked unionized employees to take a 10% pay cut to avoid furloughs, CNBC reported.

4. United Airlines Holdings Inc. (UAL)

Buy, Sell or Hold? Hold

Pros: United worked to cut costs and maximize liquidity in 2020, ending the year with $19.7 billion in available liquidity. In 2021, the company began preparing for the start of a recovery and returned to maintenance investments to prepare for the return of demand from consumers. United believes that it’s on track to outpace its 2019 performance by 2023.

United’s revenue for the third quarter of 2021 beat analysts forecasts, thanks to healthy summer demand for air travel.

Cons: In its third-quarter earnings report, United said it expected fourth-quarter capacity to drop 23% compared to the same quarter in 2019 and sales to drop up to 30% compared to the same quarter of 2019. And while United did see profits in the third quarter, they were drively by government payroll protection.

Good To Know

Investors looking to capitalize on a rebound in air travel don’t need to pursue individual company stocks unless they want to. A diversified airline exchange-traded fund called the U.S. Global Jets ETF (JETS) can provide exposure to Southwest, American, Delta and United airlines, as well as manufacturers, airline operators, airports and related services.

An Industry Ready To Recover, However Slowly

Much of the coverage of airline stocks right now revolves around the effects of the omicron variant. The airlines were one of the first retail sectors impacted when the COVID-19 lockdown struck, and as they rebuild, they need to confront many potential obstacles in a recovery that is progressing in fits and starts.

All signs indicate that at least a few of these airlines are staying nimble and doing the work it will take to reemerge fully. However, investors will likely need to stand by patiently while that reemergence develops over the next couple of years or so.

Daria Uhlig contributed to the reporting for this article.

Data is accurate as of Dec. 31, 2021, and subject to change. Information on ratings was sourced from CNN Business.

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About the Author

Kelli Francis is a writer and content strategist. She started her career with a degree in journalism from the University of Oregon and went on to work in some of the industry’s busiest newsrooms, from The Seattle Times to MSN.com, WebMD and Yahoo. In nearly a decade at Yahoo, she worked as an assistant managing editor at Yahoo Finance, specializing in personal finance content; a producer for Yahoo News; and a managing editor on Yahoo’s home page team. A perennial seeker, Kelli is currently expanding her knowledge of all things finance as a student at The American College of Financial Services. She is also the very proud mom of a wonderful and unstoppable 7-year-old with Autism Spectrum Disorder.  
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