The covid-19 pandemic shattered the travel industry which is still recovering today. But many airline stocks have doubled since their 52-week lows, do they have more runway ahead or will they crash and burn?
Financial Disclosure: Anyone who invests in a diversified retirement account likely owns some travel stocks, airlines included. I am not a financial advisor, readers should conduct their own research or contact a financial advisor before making any financial decisions. I currently invest in a diversified account that features travel stocks and I separately own a small number of shares of American Airlines stock (AAL) and Spirit Airlines stock (SAVE.)
March Was The Bottom for Airline Stocks
Virtually all equities (stocks) suffered in March (and throughout the spring) dropping off a cliff as the coronavirus crisis set in and the economy began shutting down. Even obvious pandemic choices like Peloton when all the gyms are closed – I had my finger on the button at $18/share – was down 50% from its 2020 high. Today that stock is trading above $150/share.
But travel stocks, my oh my were they battered. I haven’t included all airlines on the market in the below gallery, just the ones I paid the most attention to this year.
Airlines in the US had one of their best years in 2019 and 2020 was off to a hot start. But that, as we know, did not last. It got really, really dark. Spirit Airline’s stock was down more than 85% in just a couple of weeks. United Airlines Holdings Company (Nasdaq: UAL) was down 80%, American Airlines Group (Nasdaq: AAL) nearly 75%.
It didn’t matter whether they were traded on the S&P 500, Nasdaq, or NYSE, flag carrier or discounter, everything was down considerably and for good reason. Business travel, the lifeblood of airlines, came to a grinding halt, air passenger volumes dropped to next to nothing. And it was for good reason, too little was known about the virus, how to treat it and just how dangerous it was.
Other than a brief return in May, March appears to be the worst of it for passenger airlines.
Airline Stocks Have Doubled, Well Most
All stocks have come a long way from where they were, some stocks could be argued as irrationally high right now. Airlines have performed well amongst publicly traded companies, in part, because they had so much ground to regain.
Every airline stock I listed has doubled with the exception of American Airlines which recently backed off higher numbers. It’s not surprising to me that American has continued to struggle more than most, given the extent to which the business has been leveraged and frankly, the c-suite.
Southwest Airlines is just over twice its 52-week low but didn’t fall as far Delta Air Lines, for example. But some have absolutely crushed it. For example, Spirit is up 367% and Allegiant is up 310%.
|Airline||52-Week High||52-Week Low||Current Price||From Low||From High|
|American Airlines (AAL)||30.78||8.25||15.76||1.91||0.48|
|Alaska Airlines (ALK)||67.48||20.02||53.65||2.67||0.20|
|Allegiant Travel (ALGT)||197.12||60.06||185.9||3.09||0.05|
|Delta Air Lines (DAL)||62.48||17.51||39.98||2.28||0.36|
|Spirit Airlines (SAVE)||47.5||7.01||25.73||3.67||0.45|
|United Airlines (UAL)||90.1||17.8||43.89||2.46||0.51|
What Could Take Them Higher
There are a few great things that airlines could have going for them. Revenue passenger miles, a guidance equation that major airlines use to display passenger traffic, fell nearly three quarters from 2019. That sounds bad, but it’s unlikely to fall any further. In the last three months, passenger and cargo traffic has improved but there’s more that could help the air transportation sector.
With the rollout of the vaccine and the fact that nearly 23.5 million people have had the virus and almost assuredly have the antibodies, more people will be traveling in 2021. But the airlines didn’t take the same hit that main street businesses did with the bailout funds many received.
Older aircraft were more likely to require maintenance, satisfy fewer customers, and were less fuel-efficient. Nearly all of those have been sent to the airplane graveyards, even the ones that were recently overhauled.
Some have looked at the changing landscape. The increase in Florida flights from a point-to-point perspective by network carriers raises the question of why some carriers are doing so well while others continue to struggle.
For example, extreme discounters, Allegiant Travel and Spirit both have substantial operations across the sunshine state and are both more than 300% off their 52-week low. However, Allegiant is nearly back to its 52-week high while Spirit still has lots of runway to achieve the same goal. Southwest has been a Florida mainstay for years, and they (pretend to) operate in the discount space.
But JetBlue has a hub in Fort Lauderdale. American Airlines hubs nearly its entire Latin American network out of Miami offering flights to everywhere. So Florida alone can’t be the answer for ALGT/SAVE success while the others trail behind, and it also can’t be the sole reason why some will succeed going forward.
Perhaps Allegiant is showing the way for other US airlines to return and exceed previous stock performance levels. Its management was excited during earnings calls with an interesting peek into the future in June. I fear that Allegiant has potentially hit its practical limit for the near future, though management is strong. Spirit is building an airline for long term success with the low fares of a company like Ryanair Holding PLC, but a revamped loyalty program that’s innovative and sharp. Still, the greenest opportunity in my eyes has to be JetBlue given their network, new partnership with American Airlines, and upcoming London service.
What do you think? Do airline stocks have more runway? Are they overvalued given the challenges that remain in place? Which one do you like and which stock do you hate?