4 Airline Stocks To Watch in 2021
Airlines lost a lot of money last year — so much that Southwest Airlines had its first year in the red in more than 40 years. The industry earned $328 billion in 2020, which is about 60% down from the previous year. Management consulting firm McKinsey & Company has issued a projection 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, including but not limited to the following:
- The continuing effects of the delta variant of the coronavirus on travel.
- Whether the new variants of coronavirus emerging in Europe and elsewhere will 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. In all likelihood, there will be fewer corporate trips.
- The speed at which leisure travel picks up.
- How airlines will grapple with their post-pandemic debt levels and what that will do to ticket prices and purchasing volumes. COVID-19 created $180 billion worth of debt in the sector last year alone, and airlines are hardly in the clear now.
- The extent to which supply can keep pace with demand. Airlines will need to restaff and reservice planes to offer full capacity, and both will take time. In addition, airlines may face the need for financial restructuring such as Chapter 11 filings.
- How operating costs will land as airlines address maintenance needs and pay more for fuel.
- Whether the government, which in March of this year approved giving airlines a fresh cash infusion, will stay involved.
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. American has also seen a robust year-to-date gain of 20.16%.
That said, the rally that drove stocks’ gains since has cooled, leaving Southwest and United up less than 3% year to date and Delta down 2.77% year to date.
American, Southwest and United tried to temper expectations with a Sept. 9 statement warning of weakening demand due to the delta variant. And analysts predict 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 are still optimistic.
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
Pros: American returned to profit earlier this year as demand for summer travel surged and bookings reached approximately 90% of what they were in 2019, pre-pandemic.
Cons: Although American reported a significant gain in revenue from the first quarter to the second, revenue was still significantly lower than the same quarter in 2019.
2. Delta Air Lines Inc. (DAL)
Buy, Sell or Hold? Hold
Pros: Revenue remains down, but Delta’s CEO, Ed Bastian, told investors that the airline could be on its way to record profits by 2023.
In anticipation of a return to high demand next year, the company plans to hire 1,500 flight attendants. And in August, Delta ordered 30 Airbus A321neo aircraft on top of its existing order for 125 of the same aircraft.
Delta reported earlier this year 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? Hold
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.
Additionally, the airline, which recently celebrated its 50th anniversary, produced a 20-episode podcast series about the company’s history, which it released in June. This would be an odd thing to do if the company wasn’t confident about its future.
Cons: Southwest is among the airlines warning of third-quarter challenges due to the delta variant. Amid the increase in cancellations that began in August, Southwest is allowing customers to rebook their flight or receive credit for a future flight, which could further impact revenue.
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.
Cons: United has responded to what it anticipates will be declining third-quarter revenue by revising its capacity decline expectations from 26% to 28% compared to 2019.
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 delta 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.
Information on ratings was sourced from Zacks and is accurate as of Sept. 21, 2021. All other data is accurate as of Sept. 12, 2021, and subject to change.
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- Zacks. 2021. "Why U.S. Airline Stocks Gained Yesterday Despite Dim Views."
- American Airlines. 2021. "American Airlines Reports Second-Quarter 2021 Financial Results."
- Airbus. 2021. "Delta Air Lines orders 30 additional Airbus A321neo aircraft."
- The Atlanta Journal-Constitution. 2021. "After staff cuts, Delta CEO to keep lid on costs as travel recovers."
- Kiplinger. 2021. "5 Travel Stocks to Buy in a Tricky Environment."
- TheStreet. 2021. "Waiting for Your Flight: Outlook for Southwest Stock."