Mid-summer season – what has happened to airline stocks so far?

Investors were looking to sell in June afraid of what inflation might do to the aviation industry. However, mid-summer season is upon us, and aviation stocks have been performing fairly well in the first few days of July.

United Airlines Holdings (UAL) which plunged by around 23% in June have been seeing minor gains, rising by a little over 3% between the 1^st and 5^th of July.

American Airlines Group Inc. (AAL) also saw its shares plunge in June, losing around 27% of its value in June and gaining back around 3% as the new month started. Delta Air Lines (DAL), Southwest Airlines (LUV) and Spirit Airlines (SAVE) were also following the negative trend seeing major losses in June and regaining some traction as the mid-summer season started.

Airline investors have had a lot to worry about in recent years as the sector was hit hard by the COVID-19 pandemic seeing its revenue fall to near zero. Seen as a year full of recovery, 2022 brought forth a new surprise as inflation, which particularly affected fuel prices and labour costs has eaten into profit margins.

In the middle of June, the Federal Reserve lifted interest rates by 75 basis points, the highest interest rates hike since 1994 in an effort to slow inflation rates.

“If you’ve flown on a plane lately, planes are very full and plane tickets are very expensive,” the Chairman of the Federal Reserve Jerome Powell said during the June 15 Fed meeting.

Strong demand for airplane tickets and a surge in revenge travel led many airlines to boost their forecasts and suggest a soon return to profitability including Delta, United and American Airlines.

However, in the long run, a return to pre-pandemic levels may be a little too optimistic just yet. Corporate travel is still sluggish as households are attempting to battle a poor economy and surging prices, with a budget for travel becoming limited. That, combined with surging airplane ticket prices (up by 25% at the start of the summer) is making many people think twice, before booking their summer holidays.

EasyJet (ENJ) stock collapsed to pandemic lows on July 4 as the company’s Chief Operating Officer has resigned in the midst of chaos. The firm’s employees in Spain have scheduled strikes for three separate dates starting on July 1 claiming for salary increases. As a result, hundreds of flights have been affected with major delays and cancellations.

The Scandinavian airline SAS (SAS) was also hit with a wave of negative news as it filed for bankruptcy in the United States noting that the strike action by pilots impacted its financial position and liquidity. Following the news, which were announced on Tuesday morning (July 5), the company’s stock dipped by around 15%.

And SAS is one among many airlines that have filed for bankruptcy due to disruptions caused by the COVID-19 pandemic. Norwegian Air Shuttle filed for protection from creditors in late 2020 and Latin America’s largest air carrier LatAM filed for bankruptcy in the US in spring 2020.

Given the current uncertainty surrounding markets, it comes without a surprise that investors decided to pull out in June. As the Fed continues to battle inflation and fuel prices continue to rise, airline markets may remain volatile for the entirety of the summer.