Airline stocks rise as air travel climbs to highest level in nearly a year

American Airlines and Southwest Airlines planes
American Airlines and Southwest Airlines planes.

  • Shares of airline companies rose on Monday on optimism of a travel rebound in sight.
  • The TSA on Saturday revealed that air travel spiked to its highest level in nearly a year.
  • Airline companies were among the industries that suffered the most when large swaths of the global economy shut down.
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Shares of major airline companies rose on Monday on optimism of a travel rebound in sight after the Transportation Security Administration revealed that air travel spiked to its highest level in nearly a year.

The agency on Saturday announced that it screened 1,357,111 people at airport security checkpoints on Friday, the highest number of passengers since March 15, 2020, when it saw 1,519,192 people screened.

Here are the intraday highs for major airline stocks on Monday:

The rise in air travel sends a strong signal that the industry is headed for a rebound after a year of depressed activity during the COVID-19 pandemic.

Airline companies were among the industries that suffered the most when large swaths of the global economy shut down, though they are among the biggest beneficiaries of what analysts are referring to as the re-opening trade.

“Demand will increase sharply at the point where vaccines have been widely distributed and border restrictions are eased, and not prior. Expect that in the second half of 2021, possibly sooner if vaccine distribution improves,” Andrew Nocella, chief commercial officer of United Airlines, said during a call to discuss fourth-quarter earnings in January.

TSA in December however said that it expects air travel volume to “remain well below pre-pandemic levels through most of 2021.”

The agency screened some 324 million passengers in 2020, 154% lower than the 824 million people in 2019.

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Airline stocks climb on economic recovery optimism as Senate approves landmark stimulus package

Boeing 737 Max

  • Shares of airline companies rose on Monday amid surging optimism around the ongoing economic recovery following the Senate’s recent approval of the stimulus plan.
  • United Airlines, Southwest, American Airlines, and Delta shares all climbed.
  • Airlines were among those that suffered most when large swaths of the global economy shut down at the start of the pandemic.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell

Shares of airline companies rose Monday as the Senate’s recent approval of the Biden administration’s $1.9 trillion simulus bill led to a surge in economic optimism.

Here are the intraday highs for four major airline stocks:

The Senate on Sunday approved an economic aid package, set to be among the largest in American history. It now heads back to the House for final approval.

Many analysts say an increase in personal income for many Americans will stimulate the economy, unleashing pent-up desire to travel, consume, and spend. On top of this is a ramped-up vaccine rollout by the United States. President Biden has announced that there would be enough vaccines to innoculate Americans by the end of May this year.

Airline companies were among the industries that suffered the most when large swaths of the global economy shut down at the start of the pandemic, halting most of domestic and international travel. They are frequently one of the biggest beneficiaries of the so-called reopening trade.

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Bank of America upgrades airline stocks on stock-market momentum, but warns the industry is still vulnerable with valuations above pre-pandemic levels

American Airlines and United Airlines at LAX
American Airlines and United Airlines planes at Los Angeles International Airport.


Airline stocks have upside ahead, but investors should be warned that the industry is still vulnerable with many valuations above pre-pandemic levels, according to Bank of America. 

In a Monday note, BofA research analyst Andrew G. Didora raised price targets for airline stocks by an average of 15%, but emphasized that momentum, not value, is driving the higher price targets.

Didora raised JetBlue‘s target from $16.5 to $19.5, citing lower fuel prices, lower competitive supply, and a strong leisure-oriented user base. Didora also raised Alaska Air Group from $60 to $72, which implies a 16% increase from Friday’s close, citing the airline’s “solid liquidity position relative to peers.” 

The analyst sees the stocks, among other names, trading higher on stock market momentum in the near-term as investors load up on industries they expect will bounce back as the pandemic eases. However, Didora emphasized that this is a “buyer beware” situation, as valuations may be getting ahead of fundamentals.

“While airline stocks have traded on a re-opening since last fall, momentum continues to drive the stocks near term, leading us to increase our price objectives. But buyer beware, as we see risks to fundamentals in a recovery at a time when most airlines have enterprise values higher than pre-pandemic,” Didora said.

“As the market bids up airline stocks into a demand recovery, we see risks unfolding that lead us to believe profits will trail revenues and revenues will trail demand,” he added.

High jet-fuel prices and low demand remains an earnings risk, Didora said. Also, airline bookings remain relatively quiet; sales decreased 81% year over year for the week ending February 14.

The analyst holds a buy rating for Air Canada, Alaska Air Group, JetBlue Airways, Mesa Air Group, and Southwest. He also holds an underperform rating for American Airlines, Hawaiian Holdings, Royal Caribbean, and United Airlines.

Bank of America airlines
Bank of America

 

 

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