Passengers Can’t Help Airline Stocks as Travel Trade Falters

(Bloomberg) -- Omicron-related delays are wrecking holiday travel schedules and fueling a further decline in airline stocks that began in March 2021. 

But the return of passengers hasn’t sustained the travel industry. While airline stocks tend to follow passenger counts, the last four months have shown a divergence thanks to flight-crew shortages, halted international schedules and airlines’ long-term debt loads.

The disruptions have added volatility to trading in travel stocks, and investors have used shares in airlines and cruise lines to serve as an easy vehicle for a volatility play. Airlines post some of the highest 120-day volatility figures within the S&P 500. On days when volatility strategies are driving market returns, travel stocks tend to outperform. As investors lately turned to more defensive or big growth stocks, airline stocks have lost their allure. 

Most domestic airlines have yet to post a quarterly profit since the outbreak of the Covid-19 pandemic. Delta and Southwest are the first two to project a profit for the fourth quarter thanks to holiday bookings and a decline in jet fuel costs. Other carriers are using alternative strategies. American Airlines, for example, is continuing cargo-only flights after a 37-year gap because of shipping demand. 

And with omicron cutting international flight schedules and crew availability, airlines are lobbying for “critical” federal aid and pushing for vaccine mandates. The carriers still hold massive long-term debt, the result of raising funds in 2020 at sky-high premiums, and investors will need to consider how these factors feed into valuations.

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