Hang on to your hats, folks—airline stocks are going through some serious turbulence! Despite a surge in passenger travel that should signal clear skies, the market has been anything but kind to this sector lately. Today, we’re flying deep into what’s causing these stocks to plummet and who, if anyone, might be weathering this storm better than others.
Budget Carriers in Freefall
The main headline? Budget carriers are taking a nosedive. Shares of some major budget airlines have been downgraded recently, triggering substantial drops in their stock prices. Spirit Airlines saw a whopping 9.4% drop, plunging to its record low. Frontier Group Holdings wasn’t far behind, declining by 5.7% after Raymond James analysts downgraded it to “underperform,” marking its lowest point in six months.
The Business Travel Brake
Another significant factor weighing down airline stocks is the slowdown in business travel. According to the International Air Transport Association (IATA), companies are tightening their belts, and fewer employees are flying for business. While everyone was hoping for a robust recovery post-pandemic, the reality is that the world is shifting towards more virtual meetings and fewer business flights, adding strain to an already stressed-out industry.
Operational Costs Skyrocket and Profit Margins Squeeze
Higher fuel prices and operational costs are other major headwinds. With oil sitting at $80 per barrel—far above pre-pandemic levels of around $55 per barrel—the cost of doing business is through the roof. Operational inefficiencies, higher wages, and maintenance expenses are squeezing profit margins, even as passenger numbers rise.
American Airlines recently cut its adjusted EPS numbers, causing its stock to plummet. But there’s some good news too. Delta Air Lines and United Airlines have both received strong buy ratings from analysts, indicating a flicker of hope amid the gloom.
Expert Quotes: A Mixed Bag
This year’s record-breaking air travel is another good sign for our economy as more Americans take to the skies than ever before.
Pete Buttigieg
Although travelers have happily bid farewell to pandemic-related restrictions and returned to the skies en masse, airline stocks seem to have missed the memo on bouncing back to pre-COVID levels.
Lauren Smith, Marquette Associates
With a good deal of negativity priced into the stock, buy and hold American Airlines long-term. The pullback is overkill.
Ian Cooper, InvestorPlace
Quick Data Snapshot
Here’s a brief table that sums up the current state of some major airline stocks:
| Airline Company | Stock Change | Reason |
|---|---|---|
| Spirit Airlines | -9.4% | Potential for softer consumer trends, impact of Paris Olympics, and corporate travel (record low close) |
| Frontier Group Holdings | -5.7% | Downgrade to underperform by Raymond James analyst (six-month low) |
| American Airlines | -1% | Lowest close since Oct. 27 |
| Southwest Airlines | -4.9% | Record holiday travel expectations |
| United Airlines | -3% | |
| Delta Airlines | -2.4% | |
| US Global Jets ETF | -2.3% |
Soaring operational costs and a significant drop in business travel are clipping the wings of airline stocks, with budget carriers bearing the brunt. However, strong buy ratings for Delta and United Airlines suggest there are opportunities for sharp-eyed investors. Stay tuned to these trends, and as always, navigate wisely!