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Here’s Why Airline Stocks Are Rising Despite The Flight Cancellation Nightmare

Topline

Shares of major airlines like Delta, American and United Airlines all surged on Monday, the first day of trading in 2022, as investors bet on a rebound in travel later this year—even after thousands of flights were cancelled over the holiday season amid a surge in new Covid cases.

Key Facts

Airline stocks broadly rallied on Monday, as investors shrugged off thousands of flight cancellations over the holiday season that have continued into the new year.

After more than 13,000 U.S. flights were slashed between Christmas Eve and New Year’s Day, cancellations appear to be moderating somewhat—though 2,300 or so flights were canceled on Monday, according to flight-tracking website FlightAware.

Even though the new omicron Covid variant continues to pose a “modest, near-term risk” for airlines as it causes widespread staffing shortages and delays, effective vaccines and treatments should offset some of the downside, according to Citigroup analysts.

Monday’s price action shows that investors remain optimistic, shrugging off the recent disruptions and betting on an expected rebound in travel later this year.

United Airlines and American Airlines both gained more than 4%, while Delta rose 3.1%, JetBlue 2.7% and Southwest 2.3%. 

Budget carriers like Spirit and Alaska Airlines also saw their stocks rise by around 3%.

Key Background:

A recent surge in Covid cases—driven by the spread of the new omicron variant, which has caused widespread staffing shortages—is largely responsible for the disruptions, along with severe weather at many of the country’s busiest airports. Various airlines over the holidays, including Delta, JetBlue and United, all blamed omicron for depleting its staff and flight crews. United Airlines on Monday said it would offer pilots triple pay to ease staff disruptions related to the uptick in Covid cases; Spirit and Alaska Airlines are among other airlines to have similarly offered higher pay to employees.

What To Watch For:

Analysts at MKM Partners are especially bullish about airline stocks going into 2022 as they predict a global recovery in travel demand. While the rapidly transmissible omicron variant is likely to affect airlines’ financial results during the first quarter of this year, international travel will pick up later in 2022 as countries ease travel restrictions, the firm predicted in a note Monday. MKM expects U.S. airline industry capacity this year to reach nearly the same level as it was in 2019 thanks to growing demand as people more regularly travel again. The firm’s top airline picks for this year include Delta, Alaska Airlines, American and United. 

Tangent:

Airline stocks largely tumbled in 2021 as major carriers continued to deal with the ongoing effects of the coronavirus pandemic. Southwest and Spirit were down 8% and 10%, respectively, last year, while Delta and JetBlue lost over 2% each. United and American Airlines were the two exceptions in 2021, rising 1.2% and 13.9%, respectively.

Further Reading:

Stocks Rally To Start 2022 As Investors Bet On Economic Recovery (Forbes)

Over 3,000 Canceled Flights: Fauci Suggests Considering Airline Vaccine Mandate (Forbes)

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