Tighten up and put your tray tables away: US airline shares are ready for takeoff in 2022.
The industry endured a rough fourth quarter. Hopes of recovery and the return of lucrative international travel have been lifted in the last weeks of the year. Bad weather and airline staff shortages – fueled by the rise in Omicron Covid-19 cases – have forced airlines to cancel tens of thousands of flights.
Delta Air Lines, the first of the major airlines to announce its results, on Thursday revealed the extent of the damage. The company Lost $ 408 million in the last three months of 2021 amid a 29 percent decline in passenger revenue. The weakness, which followed two lucrative quarters, carried over to the new year. Delta said it expects to lose money again in the first quarter.
Yet there are reasons to think the worst may be over. Omicron infections are expected to peak in the coming weeks. January and the first half of February are slow months for leisure travel anyway. Bookings should be restored by the time the spring break arrives. Delta in turn says it expects the last three quarters of this year to be profitable and generate “a significant profit in 2022.”
While the NYSE Arca Airline Index has more than doubled from its low in 2020, it remains a fifth lower than its pre-pandemic level. The index has fallen 12 percent since October.
This makes it a good time to re-enter the sector. Compared to a year ago, 62 percent of Americans are now fully vaccinated. International borders have reopened and even business travelers are gradually taking to the skies again.
Increased demand for travel means that carriers must benefit from better price power. This should help offset the impact of higher fuel prices.
The recent history of investments in airlines has been volatile. But carriers came out of the crisis with leaner operations. Investors should start praising in clearer air.
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