After all that happened in 2020 and 2021, watching airline stocks was as scary as watching a girl going down into a dark basement in a horror movie. But surprisingly, by the end of the year, airline companies not just survived but even showed some decent progress. How come?
Let’s look back at what was happening in the airline industry lately and find out:
- What influenced airline stocks in 2021;
- What threats are still affecting the industry;
- Which airlines have shown the best results in 2021;
- What to expect next year.
In a nutshell…
After huge losses that airlines suffered during the first wave of COVID, stocks began to rise again in 2021. The main reason is the vaccine rollouts, the partial border opening, and demand recovery for flights inspired by the eased travel restrictions.
However, the industry is still far from safe and sound. New mutations of the virus, occasional lockdowns, and a complicated procedure for travelers remained the main concerns for air carriers throughout 2021. The video below shows the price dynamics for major airline stocks in the second year of the pandemic.
The rise of Omicron
At the end of the year, airline stocks were hit again by the new Omicron variant of the virus. Investors started panicking, stocks plummeted — but not for long. In just a couple of days, the situation improved amid reports that Omicron may not be as deadly as the previous strains. Analysts at JP Morgan summed up the market sentiment, calling the Omicron risk exaggerated.
Thus, investors have increased confidence that the new variant will not lead to a pessimistic outcome. Real problems for airlines can only begin in the worst-case scenario: if Omicron or some new mutation of the virus turns out to be so dangerous that it entails even tighter restrictions than we saw in 2020. Traders believe that this is unlikely and continue to invest in the aviation industry.
What to expect in 2022?
Despite all the Covid-induced problems, the major airlines have been holding on and even showing some progress lately. For example, the US air carriers were able to survive the turmoil without any major bankruptcies. Airlines generate enough revenue to keep their businesses up and running and stay away from trouble. Yes, their balance sheets haven’t been all that amazing, but this is not a critical moment for the industry. It seems like people’s need for travel is stronger than fear, so analysts expect further growth in airline stocks in 2022 — unless Covid gets something even more terrifying up its sleeve.
Best Stocks to Invest in 2022
By the beginning of 2022, American air carriers stocks look the safest. For example, Delta has had some of the industry’s strongest performance before the pandemic and is more flexible than most of its competitors. Southwest is the dominant US domestic carrier, and its costs are relatively low compared with the biggest competitors.
Best airline stocks 2021*
| American Airlines Group Inc. AAL +15%1Y change | Delta Air Lines, Inc. DAL -5.26%1Y change | Southwest Airlines Company LUV -12.13%1Y change |
Conclusion
Despite the turmoil of the past two years, major airlines didn’t get broke and even showed some progress. The vaccine rollout and the partial opening of borders helped restore air travel demand, which positively reflected the value of airline stocks in 2021.
The new Omicron variant of the virus and the non-zero likelihood of new mutations remain the biggest threat to the industry — airline stocks might fall again ahead of new travel restrictions and lockdowns. It would be great if the worst-case scenario never happens, and investors seem to choose to believe it won’t. However, you should be aware that the recovery process might take several years and will likely be followed by strong volatility.
